House of Fraser snubs £179m bid from Hunter

Tom Hunter, the Scottish retail and property entrepreneur, has emerged as a surprise bidder for House of Fraser with a takeover offer worth £197m. But the department store group, which owns Dickens & Jones and Army & Navy, swiftly rejected the indicative 85p-a-share offer as undervaluing its prospects.

The group's shares rose 11 per cent to 86.5p on speculation that Mr Hunter, one of Britain's richest men who made his fortune in sportswear retailing, would raise his bid to win over the store's management.

House of Fraser, perennially dubbed "House of Failure" by the City for its years of underperformance, attacked the timing of Mr Hunter's move as "designed to cause maximum disruption during the Christmas trading period".

However, David Adams, the group's finance director, said the board would be "very happy" to talk to Mr Hunter if he revised his offer. "Mr Hunter knows exactly where we are. He can make a call and we'll sit down and talk. The ball is in his court," Mr Adams said.

The approach, which was made thorough TBH, an investment vehicle owned by Mr Hunter's West Coast Capital, a private equity fund, was a 9 per cent premium to House of Fraser's closing price on Thursday evening. TBH, which has built up a 4.7 per cent stake in the department store group, said it had the support of Baugur, the Icelandic retailer that has acquired an 8 per cent stake in the group in the past few weeks.

Mr Hunter's move comes just two weeks after Allders, a rival department store group that has held merger talks with House of Fraser in the past, was put into play by an approach from the property group Minerva.

"We don't think it is any coincidence that Allders is also in a bid situation.... Our view is that there may well be a bigger game afoot," said Katharine Wynne, an analyst at Merrill Lynch. Richard Ratner, at Seymour Pierce, added: "They could take out £25m in synergies if Allders and House of Fraser get together."

Mr Hunter built the Sports Division chain of sports shops and netted £260m when it was sold to JJB Sports in 1988. He said House of Fraser would benefit from being taken private because it needed a fresh approach and substantial long-term investment. "It's very difficult for a company like this to operate in the public market. It does need big investment and big capital expenditure [but] it is caught between trying to prop up earnings and to pay the dividend."

Mr Hunter said he had not ruled out making a formal offer direct to the group's shareholders, adding: "It is not something we want to do but we will reserve our position.... This is a very, very full offer. There's a huge premium to the price before the bid speculation started."

Mr Hunter said he would put up "a fair portion" of equity financing for the deal, while bank debt would be provided by HBOS. "It's all done," Mr Hunter said.

It was thought that Philip Green, the billionaire owner of the high street store giants Bhs and Arcadia and close friend and business associate of Mr Hunter, might also be involved but he denied this yesterday. Mr Hunter owns a 5 per cent stake in Bhs – worth an estimated £40m to £50m.

Mr Green, who worked with Mr Hunter on Sports Division, added: "I talk to Tom every day. I give him a little counsel now and again. [House of Fraser's] not worth any more than this in my opinion."

Analysts were divided about whether the offer, which excludes about £120m of debt, was a fair price for a company that has a poor track record. Ian McDonald, at Numis Securities, said: "If Christmas trading is particularly poor [it could] end up looking generous."