Debenhams to be spun off as Burton regroups

Burton Group is to become the latest conglomerate to take the demerger route by spinning off its Debenhams department store business into a separately quoted company. Burton said the demerger would create shareholder value, reduce costs and allow management to devote more attention to the multiples businesses which include Burton Menswear, Dorothy Perkins, Evans, Top Shop and Principles. The demerger will take place next March subject to shareholder approval.

The multiples businesses will be grouped together in a new company under a new name which has yet to be decided. It will be led by John Hoerner, the group chief executive. Debenhams will be run by Terry Green, its current chief executive.

The demerger will mean the disappearance of the Burton name as a corporate entity nearly 100 years after Montague Burton set up his first men's tailoring shop in Chesterfield in 1900. It also sees the break-up of the group developed in a headlong dash for growth in the 1980s by Sir Ralph Halpern, the "five times a night" chairman, whose personal life became the stuff of tabloid newspapers.

Mr Hoerner yesterday denied that the company was simply following the demerger fad which has seen companies like Thorn-EMI, Hanson and Sears, take similar action.

"We looked at a demerger in 1994 but decided that the multiples business was not sufficiently well developed. Since then, the profits have improved by pounds 80m, the debts are down and this seemed like the next logical step."

He added: "In our view the company was undervalued. It just seemed like the right time to do it. The way we look at it the market doesn't fairly rate the Burton group as it is."

Though Burton shares have recovered since Mr Hoerner took over as chief executive in 1992, they have been trading close to their 12-month low in recent weeks. Yesterday the shares jumped 10.5p to 125.5p.

City analysts were divided on the merits of the move. Nick Bubb, of Societe Generale Strauss Turnbull said: "It's very good news. The central issue with Burton has been that the value and growth of Debenhams has been rather buried inside the group."

He said a separately quoted Debenhams could be worth around 80p per share while the multiples business could be worth around 50p. However, John Richards at NatWest Securities questioned whether a demerger was really necessary to cut costs and develop a more flexible management structure.

The demerger is likely to mean job cuts and a significant reduction in Burton's pounds 1bn cost base. Around 3,000 of the group's 43,000 employees work at the head office. One early departure is Stuart Rose, the chief executive of the Burton Menswear, Dorothy Perkins and Evans subsidiaries.

The company declined to specify the number of redundancies, the level of cost savings or the likely costs of the demerger. "We are only at the beginning of this process," Mr Hoerner said.

The financial details of the demerger have yet to be decided. However, it is expected that existing shareholders will be given one share in each of the two companies. Currently, there are 92 branches of Debenhams and 25 concessions. These recorded a profit of pounds 103m on sales of pounds 988m last year. There are 1,369 multiples and 117 concessions. These recorded a profit of pounds 59m on sales of pounds 1bn.

Mr Hoerner, who will maintain his pounds 1m a year salary in his new position, said the portfolio of the Multiples would be re-jigged. "The new structure means that if I want to open 50 more branches of Racing Green by taking 10 from Dorothy Perkins and so on, then I can."

He said he would not mourn the passing of Burton as a corporate entity. "Absolutely not. As far as I'm concerned, the Burton group is not something I have a great deal of affection for."

Even so, the decision to demerge the company marks the end of yet another retail conglomerate, with Sears set to demerge its Selfridges next year. It also marks the end of the grand creation of Sir Ralph Halpern, whose reign as chief executive in the 1980s came to symbolise the entrepreneurial glamour of the Thatcherite era.

Sir Ralph was a former Selfridges trainee whose parents lost their fortune when they fled Austria to escape the Nazi regime. Under his tenure, Burton expanded rapidly to include not just Burton Menswear and Top Shop but Dorothy Perkins, Principles and, in his biggest deal, Debenhams in 1985.

Conducted in controversial circumstances, Sir Ralph sealed the pounds 570m deal by securing the backing of Gerald Ronson whose Heron group held a major stake. Through the Debenhams acquisition, Burton even once owned Harvey Nichols.

While the company grew, Sir Ralph led the life of the executive playboy, with a pounds 1m a year salary, fast cars and organ sessions (he had a Yamaha synthesiser in the basement). His name became legend when he was linked with the young model Fiona Wright and the "five times a night" headline was born.