On the face of it, the business rescue of Edcon seems to be a thumping success. In recent weeks, about 100 Edgars stores have been bought by private equity group Retailability for an amount estimated to be about R400m, while 371 stores of low-cost chain Jet have been sold to TFG for R480m.
The deals, strung together by business rescue practitioners (BRPs) Piers Marsden and Lance Schapiro, have saved at least 450 stores and thousands of jobs, and raised nearly R900m. Which is miles better than liquidation.
But was it the best possible outcome? Did Marsden and Schapiro pass up the chance to get a few more cents back for Edcon’s 3,000 suppliers, many of whom will have to write off 96% of what they were owed by the retailer?
It’s an apt question, as new documents show there was another, more lucrative deal on the table to buy Jet.
The FM has seen a three-page letter sent to Marsden and Schapiro on June 19 titled "Non-binding offer for Jet stores and confirmation of funding", in which a consortium, advised by LionPride Investment Holdings and Differential Capital, would offer R800m "for the equity in the business".
It adds: "We have support for a further R1.1bn to fund working capital and transition costs."
Business rescue practitioners were desperate to wrap up the sale so that a buyer had time to prepare for the summer season
It sets out a list of "confirmed investors" and says a group of "Jet executives, current and former" would be involved too. The investors, including SA-based private equity funds and a London investment firm, had pledged R1.4bn for the Jet deal.
Nor were the advisers lightweights. SA-based Differential Capital was founded by analysts Vincent Anthonyrajah, Naeem Badat and Musa Malwandla in 2018. LionPride is headed by former Unilever and Deloitte executive Deven Govender, and includes former Nedbank chair Reuel Khoza and ex-JSE executive Geoff Rothschild.
There were five offers for Jet. Another bid, the FM learnt, came from members of Edcon’s management and was backed by the Public Investment Corp, though it’s unclear how much they offered. But financially, the LionPride offer trumped the bid from TFG, which is paying R480m, yet is getting R800m stock thrown into the mix too.
TFG’s bid was a late surprise. As recently as June 18, CEO Anthony Thunström said definitively: "There has been lots of speculation that we are the frontrunner to buy Jet. We are not interested in either business." Yet, by July 10, TFG filed a formal offer, presumably having done due diligence.
LionPride’s Govender this week told the FM that it’s clear TFG got a bargain. "Our team was disappointed, but the way we see it, it’s the way it goes: you put in your best bid and hope common sense prevails."
Unless TFG’s exclusive talks with Jet fail, Govender believes this is probably the end of the road for his group.
TFG gets freebies, suppliers get a 96% haircut
Arthur Limbouris, a supplier owed R20m by Edcon, says: "Not only is TFG getting the R800m in stock, it’s also getting fixtures, fittings and the warehouses thrown in. And yet we as suppliers are getting a 96% haircut."
One person close to the LionPride bid said: "TFG is effectively getting paid to take R800m in stock. In our bid, we’re paying R800m and agreeing to restock the chain to the tune of R500m. They just had to wait a few weeks."
But timing was a sticking point for Marsden and Schapiro, who were desperate to wrap up the sale so that a buyer had time to prepare for the summer season.
LionPride, however, said it would take until July 15 for each investor to get "unanimous approval". The consortium then asked for an extension until July 24.
A few other things also led to Marsden and Schapiro getting cold feet, says another insider — including the fact that they didn’t have full insight into the funders. Nor did they like the conditions attached to the LionPride offer, which required a "commitment that favourable contractual obligations to suppliers and employees will be renegotiated". Another condition was that it required Edcon’s support in "renegotiating leases of at least 95% of the stores".
While Marsden wouldn’t discuss individual bids, he tells the FM the offers were weighed against specific metrics. "This included the price, the certainty of the deal happening, the ability of the bidder to generate funding, the number of jobs it would save, and whether the landlord could be convinced to assign the lease to that buyer," he says.
Yusuf Vahed, the CEO of Kingsgate Clothing, which is owed R24m by Edcon, says the BRPs told creditors TFG’s offer made "the most sense" of the bids. "The others, we were told, were investment consortiums with no retail experience. We pushed for comparisons to be provided so we could determine ourselves what was best. But they only provided a brief explanation," he says.
The lack of retail experience seems an odd excuse, given that the LionPride group included former Jet executives.
But for the BRPs, it seems delaying wasn’t an option — and a firm offer in the hand from an established retailer might have trumped a speculative one arriving later.
Marsden says given the Covid-19 uncertainty, much still needs to happen before the TFG and Reliability deals cross the line. For one thing, landlords have to agree to cede the leases to the buyers. And, needless to say, another hard lockdown by the government could torpedo it all.
But for creditors like Limbouris, the existence of a higher offer is a bitter pill to swallow. Writing to other creditors, Limbouris says he disagrees with selling Jet to TFG at a giveaway price. "With more effort, a way better deal could have been found," he writes.
"It is an insult to creditors, particularly the local manufacturers, who’re hanging in to survive."
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.