MFI offer at risk as Telegraph flops

THE flotation of The Telegraph, the newspaper publisher, flopped yesterday and the separate offer of shares in MFI, the furniture retailer, was threatened as the stock market plunged to its lowest level since the general election.

Members of the public only subscribed for 23 per cent of the shares offered by The Telegraph, which publishes the Daily Telegraph, in the second leg of its pounds 84.5m capital raising. Last week 12 million shares were successfully placed with UK and Canadian institutions.

Directors of MFI and their advisers were resigning themselves last night to raising much less from the placing and offer to the public than originally envisaged. One shareholder said the flotation could still be abandoned. The price is likely to be 120p or less, valuing the company at pounds 700m, compared with an original target in the 130p-155p range.

The FT-SE 100 index of leading shares fell 27.3 points to 2,493.9, crashing through the psychological 2,500 barrier. It has now fallen by more than 240 points since City euphoria after the election lifted it to a peak of 2,737.8.

The Telegraph flotation was a combined placing and offer for sale designed to raise pounds 84.5m before expenses for Conrad Black's Hollinger group, which has sold 26 million shares and reduced its stake in the newspaper publisher from 87 per cent to 68 per cent.

The failure of the public offer left 77 per cent of the new shares with institutional shareholders, who had previously agreed to underwrite the offer at 325p.

Stockbroking analysts, who had been almost unanimously cool towards the offer for sale when its pricing was announced last week, immediately forecast that the new shares would fall to a discount on the 325p offer price when dealings begin next Wednesday.

'It's a disaster. In effect only 60 per cent of the overall issue has been taken up and you cannot assume that the underwriters are necessarily long-term holders,' said Richard Dale, a media analyst with Smith New Court.

Analysts had been critical of the pricing as soon as it was announced last week. They argued that a dividend yield of 4.1 per cent and a fully taxed price/earnings ratio of 16 at 325p was at the expensive end of expectations and left little scope for a short-term profit.

But advisers to The Telegraph blamed the public's poor response to a 90-point or 2 per cent fall in the stock market since pricing discussions were finalised last week and a weakening of sentiment towards media shares as hopes for a recovery in advertising revenues receded.

Brokers to MFI, who six weeks ago had hoped to float in the upper reaches of the 130p-155p range, were sounding out institutions yesterday to find out whether they would pay 120p-125p.

According to one institution, 'it's not yet entirely firm, but the indication is that 120p is the maximum'. It said MFI's advisers still seemed determined to go ahead with the flotation.

But shareholders said the issue might still be pulled. The venture capitalists who invested in the original pounds 715m buyout of MFI in 1987 would see very little return at the 120p price. One equity investor commented: 'There is a price when finally it's not worth doing. It's a quality company and we're not going to sell it off on the cheap.'

MFI, which sells Schreiber and Hygena kitchen and bedroom furniture in large edge-of-town stores, is due to announce the float price today. A spokesman said last night the flotation, expected to cost pounds 18.5m in advisers' and underwriting fees, would still go ahead.

Appetite for MFI seemed to deteriorate during the day. The stockbrokers to the issue, Rowe & Pitman and Smith New Court, were sounding out investors at 125p-130p in the morning, but 120p- 125p by mid-afternoon.

One institutional investor said the problem was nothing to do with MFI, which looked a very attractive investment in the medium term.

Last month the dollars 3.6bn flotation of GPA, the aircraft leasing group, was abandoned because of weak demand. The latest set of nerves could create difficulties for the pounds 3bn share issue by the pharmaceuticals group Wellcome.

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