Topshop empire survival vote ‘on a knife edge’

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Landlords and other creditors will meet on Wednesday in London to vote on revised proposals to save Sir Philip Green’s Arcadia retail empire.

Arcadia’s brands include Topshop, Miss Selfridge, Burton, Dorothy Perkins, Evans and Wallis.

Last week, a vote on Sir Philip’s proposals was postponed after some landlords, including shopping centre owner Intu, refused to back it.

It is understood that Intu is planning to vote against the rescue plans.

Sir Philip has warned that Arcadia could fall into administration if the new proposals are not approved.

What is at stake?

In May, Arcadia announced that it was in serious trouble, facing “significant liquidity issues”.

It is struggling to pay fixed charges of £100m a year, with earnings in 2019 expected to be only £30m, down from £219m two years ago.

In order to save the business, Sir Philip has proposed implementing a Company Voluntary Arrangement (CVA), which is a renegotiation of terms with a company’s creditors as part of an insolvency procedure.

However, creditors must approve not one, but seven different CVAs, in order for the business to survive, as Arcadia’s companies are interlinked.

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Sir Philip Green revised his rescue plans after landlords refused to back his initial deal

The first proposals involved the closure of 48 stores, the loss of around 1,000 jobs and a rent reduction of between 30% to 70% on 194 stores.

Sir Philip would invest £50m into the business. He also pledged to increase net pension contributions over three years, and to give landlords a 20% stake in Arcadia, but only if it is sold.

On 5 June, the vote was postponed after some landlords refused to back the deal.

What is now on the table?

On 7 June, Sir Philip announced revised plans in a last-ditch attempt to bring landlords of his stores back on board.

He is now asking landlords to agree to rent cuts of between 25% and 50% instead, as well as improved terms on break clauses for leases.

The shortfall in rent will be plugged by £9.5m provided by the Green family.

However, that commitment could rise to up to £29m during the three-year period of the deal.

Arcadia said it already had support from “pensions trustees, trade creditors and a significant number of landlords”.

The pensions regulator has also announced that it intends to back the deal, saying that it is the “best outcome” that can be achieved in “challenging circumstances”.

What are landlords saying?

Shopping centre owner Intu, which also owns the Trafford Centre and Manchester Arndale, is Arcadia’s biggest landlord with 35 of the retailer’s outlets in its properties.

Intu has refused to back the deal, and in order for the CVAs to be passed, at least 75% of all creditors must vote in favour of them.

The shopping centre operator will have the biggest single voice at Wednesday’s meeting, with an average 15% share of the vote across various different CVA proposals.

It is understood the company believes if it were to agree to the lower rent cuts, it would still not be fair to its other tenants which pay the full rent.

What do analysts think?

Maureen Hinton, retail research director at GlobalData, thinks it is difficult to tell if the deal will go through.

“It’s quite strange that he’s only talking about closing 20-odd stores as well. You would expect, if it’s so close to going into administration, they’d want to close more than 23 stores,” she says.

Retail analyst Chris Field is more certain: “I think they’ll reject Philip Green’s current rescue deal and there will be more discussions.

“But at some point, the landlords and shareholders are going to have to accept some kind of a deal.”

The UK retail environment is still a difficult one, says Mr Field, and there will be some casualties as the High Street reinvents itself.

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Topshop has seen its profits dive over the last two years

Ed Cooke, chief executive of retail property body Revo, says the vote is “clearly on a knife edge”, and the outcome is by no means certain.

However, he is not convinced that Arcadia will immediately go into administration should creditors vote against the rescue plans.

Sir Philip said the business would go into administration if the vote earlier this month didn’t go well. But it didn’t, says Mr Cooke, and “24 hours later there were other options, there were cash injections and a new rescue deal”.

Mr Field agrees, and he thinks Sir Philip still has some tricks up his sleeve.

“Things never are as dire as the business owners like to say,” he says.

“This is a man who won Retailer of the Year a few years ago. He’s no fool, and ultimately money comes first.”

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