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Arcadia may sweeten CVA bid with offer of shares to landlords

Lauretta Roberts
31 March 2019

Sir Philip Green's Arcadia may try to tempt landlords to back a potential CVA bid by offering shares in the fashion retail empire.

According to The Sunday Times, Sir Philip is mulling the idea of offering up to 20% of the company to landlords to enable them to share a windfall when the business is sold following the insolvency process.

Last week it was revealed by the Financial Times that the business had drawn up a list of 67 stores it was considering for closure but The Sunday Times suggests the business plans to use a CVA to close 30 of its 570 stores and seek rent reductions of around 30% on the rest of its estate.

Industry watchers say Sir Philip, who has contracted property advisers GCW to help negotiate the CVA with landlords, could have a hard time gaining approval without additional incentives.

CVAs are a controversial process and are only supposed to be used as a last resort to prevent struggling companies from collapse. Sir Philip's vast personal wealth and the fact that the company is still profitable (though profits are falling hard) could have been a stumbling block.

Equally there is no guarantee a CVA, which allows companies time to pay back a proportion of their debt to creditors over time, would be successful. Young fashion retailer Select, which entered into a CVA a year ago, has just filed its intention to appoint an administrator as the process proved insufficient to secure its future.

Executives are hoping by giving up between 10% and 20% of the business, landlords, who have borne the brunt of the many CVAs being carried out on the high street, may be more amenable.

Arcadia, which operates the Topshop, Miss Selfridge, Burton, Dorothy Perkins, Wallis, Outfit and Evans platforms, is also facing a struggle brought about by uncertainty at department store chain Debenhams in which its brands operates dozens of concessions.

Debenhams, which is in the midst of financial restructure, plans to close up to 50 of its stores. The chain has secured a £200m lifeline from lenders but before it can draw on the full amount it will be placed into a pre-pack administration wiping out current shareholders, including Sports Direct's Mike Ashley.

However Ashley, who has been stalking the business, has been offered a final chance to make a bid before Debenhams presses the button on the pre-pack. The department store has only drawn on one of its two new refinancing facilities of £101m and has said that Ashley needs to either make a bid or withdraw his request for an EGM to have himself installed as CEO and support a rights issue, before 8 April.

Ashley has accused Sir Philip of frustrating his attempts to buy Debenhams behind closed doors. He has also said he believed his rival retail tycoon (and some time friend) scuppered his bid to buy HMV, however Green has denied this.

The Sports Direct chief has also ruled out any interest in buying Arcadia himself saying he would not be prepared to take on its pension deficit of £993m. In the year to August 2017, Taveta, Arcadia's parent, saw operating profits drop 42% to £124m on sales of £1.9bn. It is believed profits have fallen further still since.

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