Gordon Brothers has been paid £18.3m in fees and interest since buying Poundland for a nominal sum last June, ministers were told as the discounter’s notice of intention to appoint administrators nears expiry and MPs prepare to question the owner.
The figure was disclosed to business minister Kate Dearden in a presentation by Poundland executives, a government source briefed on the material said. It breaks down as £8.6m of interest, £3.8m of store closure fees, £2.6m of debt arrangement fees and the remainder in miscellaneous fees and charges, the source added.
The sale last year saw Gordon Brothers become majority owner for a nominal price variously described as about £1 or one euro. The disclosure of payments to the owner comes as Poundland seeks to navigate a tightening timetable after filing a notice of intention to appoint administrators in late October, which gave the company roughly ten days of breathing space from creditors.
The administration notice was due to expire on Thursday 12 November. Insiders said it was likely to be extended, but whether a further extension will be granted and whether any solvent sale completes remains unresolved.
Administrators lined up and contingency planning under way
Advisory firm AlixPartners has been lined up as administrator in waiting and has requested proposals from potential liquidators for Poundland’s stores and stock in case a going concern deal fails. That approach suggests contingency planning for a break up of the business, a course of action that several potential buyers have indicated they would prefer.
Offers for portions of the chain have been made by a number of rival retailers, while a fully funded solvent proposal from a Northern Irish property company, Martin Property Group, was rejected. Tesco, Poundstretcher and B&M have each tabled offers for parts of the business which, if accepted, would lead to a break up of the chain. Xyra Group Holdings has expressed interest but has not secured financial backers, insiders said.
A focal point in talks has been a £30m shareholder loan, of which £22.5m is owed to Gordon Brothers. Pepco Group, the minority shareholder, has offered to defer its £7.5m share of that loan in an attempt to facilitate a solvent sale.
Gordon Brothers said in a statement that Poundland was ‘in distress’ when acquired and ‘remains challenged and vulnerable to any potential downturn in future trading’. The firm said its intent had been to protect as many jobs as possible. The company also emphasised that it had not publicly disclosed financial information about Poundland, and it has not confirmed the £18.3m figure disclosed to ministers.
The chain operates about 600 stores and employs what has been described variously as ‘more than 10,000’ and ‘roughly 11,000’ staff. Under the current managing director, Barry Williams, the business is said to be profitable on an EBITDA basis, though that measure does not allay immediate liquidity pressures.
MPs to question owner in private session
The Business, Innovation, Science and Trade Committee, chaired by Liam Byrne, will question Gordon Brothers in private on Wednesday 11 November after the owner sought to avoid what it called a ‘show trial’. Mr Byrne said the committee agreed to a private session ‘in the first instance’ after assurances that several credible buyers were in active talks.
The private format will allow MPs to question the owner and receive commercially sensitive information that might not be suitable for a public hearing. The committee session is expected to probe the rationale for payments to the owner since acquisition, the status of offers on the table, and the prospects for preserving the business as a going concern.
What happens next is uncertain. The administration notice could be extended while talks continue. If no solvent sale is agreed, the contingency plans being prepared by AlixPartners could lead to an administrator being appointed and parts of the business sold separately. Job numbers and the scale of any closures will depend on the outcome of negotiations and any administrator’s plan for the chain.
All figures disclosed to ministers come with caveats. The £18.3m total was provided in a presentation to the business minister, and has not been independently verified by the owner. Ministers and MPs will now seek fuller detail when they question Gordon Brothers privately later this week.
