November 26, 2008 9:22 pm

Woolworths left to wonder what went wrong

The eventual demise of Woolworths was more tragedy than farce, with 30,000 people left worrying about their jobs just before Christmas.

However, the final few days of Woolworths plc have brought to the fore an eccentric and international cast of characters, from Norwich-based Iranian organic farmer and property developer Ardeshir Naghshineh to Paul McGowan, the Irish chief executive of the Hilco UK restructuring fund.

Alan Sugar, the entrepreneur and star of The Apprentice BBC television series, almost became a shareholder in the final weeks – but his stake was tangled up in the Icelandic banking crisis and was never delivered.

BBC Worldwide, the broadcaster’s commercial arm, agreed in principle to pay more than £100m for Woolworths’ stake in their joint venture. The government even intervened – though not with taxpayers’ money – to offer support.

Some of the participants in the dramatic final days never made it on to the stage. David Buchler, the turnround specialist and former head of Kroll Europe, on Wednesday contacted the FT to complain about the Woolworths’ board’s organisation of the process.

Mr Buchler said he had £350m-£400m in place for a possible deal to take over Woolworths’ stores but had been consistently rebuffed by the company’s board, which was in exclusive talks with Hilco UK.

“I’ve not come across this in 35 years of dealing with companies that have these sorts of problems,” he said. “It’s just unbelievable . . . Whether we are a bidder or not a bidder we just want a fair crack of the whip that’s all.”

Criticism from the board also came from Mr Naghshineh, Woolworths’ biggest shareholder with 10.2 per cent of the company’s equity, who proposed his own plan.

He, too, was told the board was bound by its exclusive contract with Hilco. After initially supporting Steve Johnson, who only arrived at Woolworths in September, Mr Naghshineh concluded all the directors were “bereft of ideas”.

All this will inevitably be seen as unfair by Richard North, the former chief executive of Intercontinental Hotels, who became chairman last year.

At times emotional as he tried to find a solution to the fact that Woolworths’ £385m borrowing facility was soon to evaporate, there was no question of Mr North’s commitment as he fought hard in the final days to secure a deal.

On Wednesday afternoon, the deal with Hilco was ready to be signed. The Woolworths pension fund was involved with the final discussions. Hilco would have taken the retail division for a nominal sum, leaving behind a wholesale division EUK.

Woolworths’ stake in 2entertain, a joint venture with BBC Worldwide, would have been sold to the broadcaster for more than £100m. However, BBC Worldwide required the board to find a year’s secured funding for EUK, which distributes DVDs and other products to supermarkets.

The directors decided after talks with Burdale and GMAC, the lead creditors, and Deloitte, their adviser, that no such funding deal would be forthcoming. The deal was off. Directors took the decision to appoint administrators.

Woolworths’ demerger in 2001 from Kingfisher, the retail conglomerate, is widely seen as the moment that the seeds of the variety retailer’s destruction were sown. That lumbered the company with onerous leases on many of its 800 stores.

At the last annual meeting for Trevor Bish-Jones, who ran Woolworths for six years, he said that: “[Making] £3bn of sales for £30m of net profit is hard work this side of the fence.”

That level of profitability, which was declining, was not enough to service the leases. A highly seasonal business selling toys and gifts such as video games, Woolworths was reliant on credit – it signed a £385m asset-backed lending facility in January.

With lenders reluctant to fund the company for another year on similar terms and ultimately choosing not to support the various structures proposed by the board and Hilco in the last few days, the company’s fate was sealed.

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