Green to launch Arcadia restructuring within weeks

Friday, March 15th, 2019 12:24pm

Sir Philip Green is accelerating efforts to restructure his Arcadia retail empire through a programme that could involve announcing significant numbers of store closures and substantial job losses as soon as next month.

Sky News has learnt that the billionaire tycoon and his advisers are working on proposals to unveil a Company Voluntary Arrangement (CVA) - a form of insolvency mechanism - within a matter of weeks.

The scheme, which would require the approval of creditors including landlords and the Pension Protection Fund (PPF), would trigger substantial job losses across the Arcadia business, whose brands include Top Shop, Dorothy Perkins and Miss Selfridge.

Formal discussions with landlords are expected to begin in the coming weeks, with property agents expected to be drafted in shortly to work on the programme.

Insiders said on Friday that Arcadia's chief executive, Ian Grabiner, had indicated in recent days that the company was seeking to launch the restructuring programme in late April or early May.

They cautioned, however, that a formal restructuring could yet be halted or delayed depending upon the progress of talks with stakeholders.

The chances of a CVA being approved - as they have been at other struggling retailers, including Carpetright, Mothercare and New Look, during the last 12 months - will hinge on the support of major retail landlords such as British Land, as well as the PPF.

Like many other high street groups, Arcadia has been hit by a toxic cocktail of rising costs and declining sales and profits.

Sir Philip and his advisers are understood to be in talks with The Pensions Regulator about the details of a proposed CVA, the sensitivity of which has been intensified by the tycoon's protracted dispute over BHS's retirement scheme deficit after its collapse in 2016.

After months of negotiations with the watchdog, Sir Philip eventually agreed to contribute up to £363m to plug BHS's pension deficit.

Sources said TPR would only endorse a CVA if it was satisfied that the ability of the revamped Arcadia to meet its pension contribution obligations was enhanced.

MPs published documents in 2017 indicating that Arcadia's pension deficit had soared to £565m.

The company pays roughly £50m annually into the scheme as part of a deficit recovery plan.

EY, the big four accountancy firm, is advising Arcadia's pension trustees, while Deloitte is advising Sir Philip's company on the restructuring, including options to shore up its pension scheme.

If a CVA is not approved or does not get launched because it is unlikely to gain creditors' support, the billionaire is seen by analysts as having few alternatives aimed at securing the company's future.

He could seek to run an accelerated store closure programme by offering lump sums to landlords to terminate leases early, or inject additional capital into the business.

A sale of the business is seen as an unlikely option.

Arcadia trades from about 570 standalone stores, as well as hundreds of branded concessions elsewhere.

Sir Philip's intention to launch a restructuring of his group was originally reported by The Daily Telegraph in January.

The tycoon's Taveta Investments vehicle bought Arcadia in 2002, enjoying a golden period as Top Shop became one of the most desirable brands on the high street.

In 2012, he sold a 25% stake in Top Shop to Leonard Green & Partners in a deal valuing the brand at £2bn.

Sources said that a CVA would encompass the entirety of the Arcadia group, although some brands would be disproportionately affected.

The probable numbers of store closures, scale of rent cuts and extent of job losses have yet to be determined.

Arcadia has already been closing stores for several years as leases have expired, but the growing crisis on the high street has prompted Sir Philip to explore more radical plans to shield himself from the pressures which have triggered bankruptcies at LK Bennett, House of Fraser and Toys R Us UK, and left Debenhams on the brink of insolvency.

It comes after a torrid three years for a man once-feted as the king of Britain's retail industry.

After selling BHS to Dominic Chappell, a former bankrupt, for £1 in 2015, and its collapse little more than a year later, Sir Philip was accused of attempting to distance himself from the business in order to shed responsibility for its pension deficit.

More recently, Sir Philip has been the subject of intense scrutiny over his behaviour towards Arcadia employees and his use of non-disclosure agreements to prevent former workers discussing their severance packages.

In January, he dropped a legal battle against The Daily Telegraph's publisher just before it went to trial, but has continued to deny all suggestions of "unlawful sexist and racist behaviour".

A source close to Sir Philip said he was looking at "a range of options" for Arcadia's restructuring, and that no decisions had been taken.

A spokesperson for TPR said it was aware of the situation and it was in close discussions with the trustees.

Sky News

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