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LONDON-Bad news for Debenhams. The property portfolio of department store chain has been revalued at £425 million ($694.3 million), 30% less than the company had hoped.

The announcement scuppered hopes that potential buyers would be forced to increase their bids. Debenhams has already agreed to a £1.5 billion ($2.4 billion) takeover by private equity firm Permira but there is growing speculation that a rival bid could be launched. Shareholders had hoped that the property would be revalued at £600 million ($979.9 million) and so, in the event of a bidding war, force bidders to raise their offer.

The UK retail sector has become a favourite target of venture capitalists and property entrepreneurs keen to buy the businesses on the cheap and then sell the assets. Chains worth £3 billion ($4.8 billion) have changed hands over the past three years but in recent months bidding wars have broken out over high profile names like supermarket chain Safeway, toy retailer Hamleys and department store rivals Debenhams and Selfridges. Businesses such as WH Smith, Woolworths and even Boots are under the spotlight, while JJB Sports, Somerfield and Mothercare could all be taken private.

The attraction of the retail sector is partly because of a consumer boom that coincided with a failure on the party of the City to see the value of many leading high street names. There is now a belief that the many of Britain’s biggest retailers are undervalued on the stock exchange.

But the biggest appeal of these companies is their property. As owner-occupiers, stock exchange rules mean they do not have regularly to value their assets. In some cases, the property portfolios were valued four or five years ago and so the balance sheets of these companies does not reflect the huge increases in capital values of retail property.

This pattern of behaviour is expected to change in the next couple of years when the EU adopts international accounting standards which are expected to force companies to revalue their assets more frequently.

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