British department store Debenhams is facing a period of unprecedented upheaval following news that KPMG has been engaged to help with emergency business restructuring efforts. According to reports, the struggling retailer is currently weighing up its options which include a company voluntary agreement (CVA).
The controversial CVA instrument has been used by many retailers in the past including New Look, Mothercare, and Carpetright during their restructuring efforts, much to the chagrin of landlords and other creditors who say that it leaves them shortchanged. Under a CVA insolvency framework, debtors reach a voluntary agreement with business creditors to repay all or part of their borrowings over an agreed period.
News of the emergency restructuring efforts involving KPMG resulting in Debenhams shares dropping more than 17 percent in morning trading. This is the latest blow in a year that has already seen the chain racked by redundancies and three separate profit warnings.
When pressed for comment, a Debenhams spokesperson said:
“We have no announcements to make on any store closures in our estate. Like all companies, Debenhams frequently works with different advisers on various projects in the normal course of business.”
Chairman Ian Cheshire has continued to pour cold water on any suggestions of an acute cashflow crisis, stating that the board is working with KPMG to explore “longer term options, which include strengthening our balance sheet and reviewing non-core assets.”
The store chain has already carried out a number of efficiency cuts this year, announcing last month that it planned to remove up to 90 jobs following February’s cull of 320 management roles across its stores.
The company on its part has stated that it expects to experience a significant upturn in fortunes, especially given strong results from the start of the new clothing season. The news of KPMG’s engagement at Debenhams comes at a time when the British retail industry is undergoing a minor meltdown.
Earlier, House of Fraser was forced into CVA insolvency before being bought by Mike Ashley. High street fixture Marks & Spencer also recently announced that it plans to shutter 100 stores over the next four years as its high street business contracts on pressure from online competitors. Mothercare also announced in 2018 that it is set to close 50 stores under a CVA insolvency plan.
Rumoured Mike Ashley Takeover Bid
Amidst the speculation, there are indications that billionaire Newcastle United Chairman Mike Ashley who owns Sports Direct may be considering making a takeover bid for the troubled giant.
If successful, Ashley would become one of the most influential people in the British retail industry, having acquired House of Fraser earlier this year.
According to existing regulations, Ashley, who already owns a significant amount of Debenhams shares is required to bid for a takeover once his share percentage hits the 30 percent threshold.
Speaking about the unfolding situation, AJ Bell investment director, Russ Mould remarked that the market is “clearly taking seriously” the news of Debenhams appointing KPMG.
In his words:
“The struggles at Debenhams follow the collapse of rival House of Fraser into administration over the summer, and another thing both have in common is a material presence on the shareholder register for Mike Ashley’s Sports Direct. Speculation that he might launch a bid for Debenhams after capturing House of Fraser in August is likely to follow.”
Since increasing his stake at Debenhams to 29.7 percent, Mike Ashley has been assumed to be weighing up a move on Debenhams as part of a broader strategy to consolidate the retailer into his sprawling clothing retail empire.