National furniture & appliance retailer Smiths City Group Ltd called in receivers on Thursday, enabling its sale to Polar Capital Ltd to be immediate.
The alternative would have been a slower death while a shareholder meeting was arranged.
Shareholder approval had been the last of 3 conditions for the sale. The other 2 were buyer finance being confirmed and Smiths City financier approval.
Smiths City said last Monday it had entered a conditional agreement to sell its retail & finance operations in a transaction that valued the assets at about $60 million. Polar Capital was expected to buy 22 of Smiths City’s 29 stores, leaving 7 – all outside Auckland – to be closed, and confirmed last Wednesday that it had secured ongoing funding for the assets it intends to acquire.
Smiths City chair Alastair Kerr said in an NZX release on Friday the company had invited its largest secured creditor, ASB Bank, to appoint receivers to Smiths City Group Ltd & Smiths City (Southern) Ltd. The joint receivers & managers are Colin Gower & Diana Matchett of BDO Christchurch and Andrew Bethell of BDO Auckland.
Mr Kerr said on Friday:
- Smiths City’s ordinary shares would retain no value following the sale
- Further delay risked jeopardising the completion of the sale and a reduction in the amount available to secured & unsecured creditors
- A receivership would ensure the timely & orderly transition of the assets to Polar Capital, protect their value & the jobs of the approximately 350 people expected to transition to the new owners with the sale, and
- In any case, the Smiths City board considered an insolvency process was inevitable.
Immediately on appointment, the receivers waived the remaining condition and settled the sale.
The receivers’ will prepare their first report on the state of affairs with respect to the property in receivership no later than 2 months after their appointment.
All remaining stores stay open
Polar Capital owner Colin Neal said on Friday: “All the stores we have acquired will be open for trading today, doing what they do best: offering great quality products, excellent value & no-nonsense service.
“Commitments made to customers will be unaffected by the receivership & the sale. If customers have paid for a product they will get the product. I am looking forward to working with Smiths City’s people & the communities in which we operate to build on the company’s position at the heart of New Zealand retailing.”
Lockdown the last straw
The Covid-19 lockdown was the last straw for Smiths City, which said on 30 March it needed new capital. Bu then its stores were shut for 7 weeks due to the pandemic.
ASB Bank agreed to delay the repayment of $1.5 million of the company’s $65 million senior debt facility by 4 weeks, and the board appointed PwC to help develop a strategy to attract new investment & create the optimal capital structure.
“Over the past few weeks, the board has taken many steps to preserve cash & contain costs, including the commencement of an organisational restructure. It concurrently explored numerous options to secure new capital, including discussions with our largest shareholders & other potential strategic investors, to provide some immediate funding and potentially underwrite a broader capital raising.
“We were unsuccessful in securing sufficient capital commitments to make this course of action viable. As a retailer, it is vital that we have a stable financial base to give our customers, suppliers & financiers confidence to work with us…
“Unfortunately, the proceeds of the sale, combined with the value of residual assets, will not sufficiently cover the group’s liabilities to unsecured creditors (in particular, under leases that are not being transferred). Consequently, the board advised the market earlier [last] week that the sale would likely result in the loss of all shareholder value in the company.”
21 May 2020: One condition left for Smiths City sale
20 May 2020: Updated: Brewer & artisan food business owner Colin Neal to buy Smiths City
Attribution: Company releases.