Struggling retailer reverses £5.7m takeover stance after poor Q1 trading

Wakefield-headquartered Bon Marché has this morning reversed its stance on a full £5.7m takeover bid for the struggling retailer after poor trading during Q1.

Billionaire Phillip Day – through his Dubai-based investment vehicle Spectre- made a mandatory cash offer of £3m in April, purchasing 52% of the listed retailer. Under takeover rules, this meant that an offer for the full shares had to be made by Spectre and this was confirmed as being £2.73m – taking the total takeover acquisition cost to £5.73m.

Bon Marché has since been resisting the full takeover, stating it “materially undervalues Bon Marché and its future prospects.” Day already owns retail chains Edinburgh Woollen Mill and Peacocks.

However, this morning, the retailer has said the offer terms are “fair and reasonable”  and it now recommends the takeover bid to its shareholders after a poor quarter of trading.

Bon Marche this morning said: “The Board believes that once the near term has been weathered, the medium and long term prospects for the Bon Marché business are good. The Board continues to welcome the opportunity to engage with Mr Day, who has, as yet, not taken up the offer to discuss future plans for the business, and believes that, with his sector experience, he would be a successful long term owner.”

The retailer this morning stated: “Whilst the Board’s view remains that the Offer does not adequately reflect the potential longer term value of the business, the increase in uncertainty that has developed reflecting the trading and financial position of the business during the first quarter of the financial year makes the certainty represented by the Offer potentially more attractive in the short term.

“As a result, the Board of Bon Marché, which has been so advised by Investec as to the financial terms of the Offer, is now of the view that the terms of the Offer are fair and reasonable. The Board therefore recommends that shareholders accept the Offer, as they intend to do so in respect of their own beneficial holdings.”

Bon Marché revealed this morning that trading during the first quarter of the new financial year had been poor, “primarily due to continued weakness in the underlying clothing market, and a lack of seasonal weather to counteract it, particularly in June.”

The retailer added: “In previous years, there would have been an expectation that at some stage during the selling season, better weather would generate a sales peak to offset the dip experienced during the first quarter but, in our experience, the current clothing market is not following the patterns of previous years.

“It is early in the financial year, and the achievement of a PBT [pre-tax profit] result which is in line with the Board’s expectations is possible, but there is a significant degree of uncertainty attached to this, and risks are more heavily weighted towards the downside.”

Bon Marché said the implementation of its cost reduction programme had now lowered its annual cost base by £6m. The firm added that the cessation of “all but unavoidable capital expenditure”, it has adequate liquidity provided by its bank’s £5m overdraft and other facilities.

The listed firm added: “Nevertheless, in view of the uncertainty, PwC, Bonmarché’s auditor, has suggested during informal discussions, that without a clear indication of an improvement in trading prior to the date the FY19 accounts are due to be signed (26 July 2019), it may include an emphasis of matter reference in its audit report due to the uncertainty with regard to going concern.

“It has also expressed concern with regard to uncertainty surrounding Mr Philip Day’s ultimate plans for the business (Mr Day is Spectre’s sole shareholder).”

Investec is providing independent financial advice to the Board of Bon Marché.

Russ Mould, investment director at AJ Bell, said: “Talk about an embarrassing situation. Trading is so bad at clothing retailer Bonmarche that its directors have gone with their tails between their legs and changed their mind on a previously-rejected takeover offer.

“They are still grumbling that the offer is too low as it doesn’t reflect the potential longer term value of the business. Yet the directors say they have no choice but to cave in and recommend the bid from Philip Day’s Spectre vehicle due to financial pressures on the business.

“The quantum of its problems are such that auditor PwC has implied there are uncertainties with regards to Bonmarche’s future without an improvement in trading.

“Spectre believes it can help save Bonmarche by cutting its cost base and potentially improving its supply chain, marketing, supplier terms and more. Its plan isn’t merely about short-term support to squeeze the final drops out of Bonmarche and the company ultimately dying another day; it’s about securing the long-term future of the business.

“Shareholders will be hugely disappointed by the retailer having to be bailed out at a cheap price, but it is perhaps better to get something back than nothing at all which is the alternative if Bonmarche can’t be saved.”