Struggling retailer Woolworths yesterday issued a firm snub to Malcolm
Walker's offer to buy the company's retail chain, branding it
"unacceptable".
The Sunday Telegraph reported yesterday that the founder of the Iceland
frozen food chain had approached the Woolworths board last month with a plan
to buy the 815-strong retail network.
However in a stern rebuke, the sweets-to-DVD retailer said: "The board
confirms that it did receive an indicative proposal and that it has been
rejected.
"The offer undervalued the retail assets, the cashflow and the potential
profits of the business".
A spokesman added that the board had also rejected the proposal because
of Mr Walker's unwillingness to take on any pension liabilities for current
or former retail staff, or assume any part of its debt. The company had a
pension deficit of almost £50m according to its last annual report and debts
of £124m.
Woolworths appointed Steve Johnson as its new chief executive, after the
ousting of Trevor Bish-Jones, just a week ago, betting he can lead a
turnaround similar to the recovery he oversaw as head of home-improvement
retailer Focus DIY. He takes over in September and could receive up to £9m
if he succeeds in this.
In a statement yesterday the group said it believed there was "considerable
opportunity to build a sustainable value retail proposition". Many analysts
disagree, arguing the retail division carries a negative value that has
weighed on the group's shares.
However one source close to the deal described the approach - believed to
be in the tens of millions - as a "low-ball" proposal.
The board, which has considered selling the retail arm over the past two
years, is understood to be prepared to consider higher offers, if a number
of issues can be worked out. The company said yesterday that the deal on the
table "involved a complex restructuring which in practical terms is not
achievable".
A Woolworths spokesman said it would be difficult to split the retail arm
from the other divisions because the credit crunch meant it had become
difficult to refinance debt. Much of Woolworths' current borrowings have
been raised against the company's retail property portfolio, making a
separation even more difficult, the company said.
It added that lease-liability was also an important factor in the
rejection of the proposal - Woolworths has guaranteed 145 store leases and
this liability will remain with the group unless a covenant is inserted in
the documents of the acquisition. A "NewCo" covenant, as proposed by
Iceland, has been dismissed as "not strong enough".
Although Woolworths is best known for its high street stores, its most
profitable operations are EUK, the, entertainment wholesale division, and 2
Entertain, the music and video publishing it owns as a joint venture with
the BBC. Mr Walker is interested in neither business.
He could not be reached for comment yesterday, although it is understood
that his consortium, which includes Icelandic retailer Baugur, plans to
maintain a dialogue with the Woolworths board in the hope of hammering out a
deal. Baugur owns 10pc of Woolworths.
Woolworths' retail division had an adjusted profit of just £3.4m last
year, whereas EUK's and 2 Entertain's adjusted profit amounted to £54.8m.
Woolworths shares are expected to rise today from Friday's close of 6.65p -
a 71pc decline over the past year.
Source: Daily Telegraph
