Morrisons has proposed a last-minute rescue deal for McColl’s, the convenience store chain that last night admitted it would collapse into administration imminently if it couldn’t resolve its funding issues.
According to Sky News, the now private equity-owned Morrisons tabled a proposal yesterday evening that would see McColl’s debts being taken on in full and its pension scheme protected.
The proposal was lodged with PricewaterhouseCoopers (PwC), the adviser to McColl’s lenders, with a response expected soon.
McColl’s has debts of around £170m and has been in talks with its lenders and its wholesale supplier [Morrisons] for financing to secure its long term future. It recently received a takeover approach – which is believed to have come from forecourt giant EG Group – but discussions ended without an agreement.
In March, McColl’s Chief Executive Jonathan Miller stepped down after the business endured torrid trading conditions and supply chain issues last year that impacted both its revenue and profit.
Last week, McColl’s stated that while a recovery in trading performance had continued during the first half of March, the business had since experienced “softer trading” through the Easter period, impacted by reduced consumer spending and continued supply chain disruption.
Last night, the operator of over 1,100 convenience stores and newsagents said in a statement that unless an alternative funding solution can be agreed upon in the short term, it was increasingly likely that it would be placed into administration with the objective of achieving a sale to a third-party purchaser and securing the interests of creditors and employees.
As well as the wholesale agreement with Morrrisons, McColl’s has converted 200 of its shops to the Morrisons Daily format, which it had said was “fundamentally reshaping the business into a more profitable and sustainable model”. In November, it announced that it would accelerate the number of conversions to 450 within a year.
People familiar with the rescue proposal told Sky News that the potential Morrisons offer would be structured as a solvent deal rather than pre-pack administration. However, it would not involve any meaningful value being attributed to McColl’s London-listed shares, which have been trading at under 1p in recent days, making the entire company worth less than £3m.
The report suggested that the deal would still represent a substantial financial commitment for Morrisons and its new owners CD&R given McColl’s large debts.
Precise details of the proposal remain unclear, although one insider close to McColl’s told Sky News that the “vast majority” of its stores and 16,000 jobs would be retained after a takeover.
Both parties have yet to comment.
Following the above report, McColl’s has now issued a statement outlining its intention to appoint administrators:
Further to the announcement on 3 May 2022, the Company’s senior lenders have this morning declined to further extend the waiver of the Company’s banking covenants, which has now expired. Whilst the constructive discussions with the Company’s key wholesale supplier to find a solution with them to the Company’s funding issues and create a stable platform going forward had made significant progress, the lenders made clear that they were not satisfied that such discussions would reach an outcome acceptable to them.
In order to protect creditors, preserve the future of the business and to protect the interests of employees, the Board was regrettably therefore left with no choice other than to place the Company in administration, appointing PriceWaterhouseCoopers LLP as administrators, in the expectation that they intend to implement a sale of the business to a third-party purchaser as soon as possible.
Accordingly, the directors of the Company and of each of Martin McColl Limited, Clark Retail Limited, Dillons Stores Limited, Smile Stores Limited, Charnwait Management Limited and Martin Retail Group Limited have resolved to file documents at Court today to appoint Mark James Tobias Banfield, Robert Nicholas Lewis and Rachael Maria Wilkinson of PwC as Administrators of the Company and of the named subsidiaries. That application is expected to be approved by the Court over the course of the day.
NAM Implications:
- NamNews readers will have already calculated their incremental sales required to recover money owed by a customer going bust.
- i.e. money owed divided by supplier net margin %, multiplied by 100.
- i.e. if the customer owed £250k and supplier makes 5% NPBT, incremental sales of £5m (!!) are required to cover the loss.
- This should be a default exercise in these unprecedented times!
