UPDATE 1-French retail chain FNAC shares sag on market debut
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PARIS, June 20 (Reuters) - Shares in books and music retailer Fnac fell more than 11 percent on their market debut on Thursday as investors offloaded the stock they received from parent Kering.
PPR, which formally changed its name to Kering at its annual general meeting on Tuesday, decided to hive off Fnac through an initial public offering (IPO) after having failed to find a buyer for the retail chain.
By 0710 GMT, Fnac shares, which were priced at 22 euros in the IPO, were trading at 19.50 euros. France's blue-chip CAC 40 index was down 1.6 percent.
"This is clearly at the lower end of what the street was expecting," said Stephanie d'Ath, analyst at Bernstein, said about Fnac's listing price.
Shareholders in luxury goods maker Kering - owner of brands such as Gucci, Bottega Veneta, and Yves Saint Laurent - received a cash dividend of 2.25 euros a share and 1 Fnac share for every 8 Kering shares held as part of the spin-off.
A Paris-based trader said the sharp price drop was mostly due to index-tracking funds and fund managers who only invest in shares with large market capitalisations dumping the stock.
"Index funds are forced sellers here, and luxury stock holders are not willing to hold some small/midcap retail names," he said.
"The stock would look cheap below 17 euros, or an overall valuation below 280 million euros, that would be punitive given the current cash position of about 200 million euros."
Founded in 1954 by Trotskyites who wanted to make books and music more accessible to the masses, Fnac has been struggling to adapt to the 21st century, hit by music piracy and fierce competition from Internet retailers such as Amazon.
To boost investors' confidence in the future company, Kering's family shareholder Artemis has pledged to keep its 39 percent stake in Fnac for as long as two years and part of that holding thereafter.
Fnac's IPO is the second time the company has listed in Paris, having floated on the bourse in 1980 before being taken private by PPR in 1994. (Reporting by Michel Rose, Blaise Robinson and Astrid Wendlandt; Editing by Erica Billingham)
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