Philip Green is racing to secure the future of his retail group Arcadia, promising to invest £100m in the company as it seeks creditor support for what promises to be one of the most complex restructurings on the UK high street.
The owner of chains including Topshop and Dorothy Perkins is locked in tense negotiations with landlords and the pensions regulator over plans to cut rents and close a swath of stores in the face of sinking sales in its UK shops and persistent discounting by high-street rivals.
Arcadia sales declined 15 per cent over the key Christmas season, according to Kantar figures seen by the Financial Times. The rate of attrition has slowed to 5 per cent in the most recent 12-week period but that is partly because sales in the same period last year were hit by unusually cold weather.
Two people party to the negotiations have said a company voluntary arrangement, a form of insolvency that is Arcadia’s preferred route to resolving its problems, is likely to entail seven separate schemes because of the way the company’s operations are structured.
“This deal is like trying to push Brexit through,” said one manager at a property fund with exposure to Arcadia. “They need to have enough votes to make sure it goes through, and with all these CVAs there’s a lot of playing one part off against the other.”
Landlords, including many veterans of previous negotiations with Sir Philip and his team, are demanding clear evidence there is a plan to revitalise the business. “It depends on which format you have but Arcadia has not sufficiently invested in the business,” said the fund manager.
One landlord said the billionaire tycoon’s effort to “plead poverty” had caused “an awful lot of bad feeling”. A person close to another said Sir Philip had “failed to build bridges” as a tenant.
Arcadia declined to comment.
Many companies that implemented CVAs in the past, including Woolworths and BHS, went on to fail shortly afterwards.
Sir Philip is understood to have loaned the company £50m, with a further £50m to come if the CVA is approved. The loan would be secured against freeholds held within the group and used for revitalising the stores and further investment in digital capability.
Natalie Berg, a retail analyst, said the company should abandon in-store concessions and selling in Tesco in favour of “the 21st century version of the department store” with more investment in experience and service.
“A lot of Arcadia’s problems look self-inflicted,” she added. “It has underinvested in the stores, in branding and in digital and there is no room for status quo retailers in this market.”
A plan to allow landlords to share in any future upside — through giving them 10 per cent of any profit on an eventual sale — has met a more lukewarm reception. Landlords have questioned when and at what price any such sale would materialise.
An alternative model is that pursued by Debenhams. The department store group, which is also seeking approval for a CVA, has offered landlords a profit-based incentive, payable in cash, in return for supporting the CVA.
Restructuring experts said Arcadia needed to be certain that enough landlords would support the plan because many of its leases are held by property subsidiaries backed by intercompany debt. In the second of the two votes needed to approve a CVA, the connected creditors are removed — usually leaving banks, landlords and the pension fund as the key stakeholders.
“We [landlords] can definitely block it [the CVA] if there is a quorum of people who say no,” the landlord said.
The pension fund’s votes will be cast by the Pension Protection Fund, because Arcadia’s main defined-benefit scheme is in deficit. In the past, the PPF has been known to abstain or even vote against schemes it believes will result in a weaker scheme sponsor.
Arcadia has proposed cutting its annual pension deficit reduction contributions back to £25m from £50m a year but contributing the freehold of Topshop’s Oxford Street store to the fund in order to boost its assets.
If the company fails to secure approval for the CVA, the most likely alternative is a sale of all or parts of the business through some other form of insolvency proceedings. That would probably result in all creditors being compromised and the pension fund passing into the PPF.
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