House of Fraser bought out of administration

October 2018 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

October 2018 Issue

Sports Direct International has acquired British department store House of Fraser for £90m.

The deal was announced hours after the company fell into administration following failed negotiations with its creditors. Sports Direct has agreed to take all UK stores of House of Fraser, the House of Fraser brand and all of the stock in the business, the company noted in a statement announcing the deal. Prior to Sports Direct’s acquisition of the company, Frank Slevin, chairman of House of Fraser, said: “This has been an extraordinarily challenging six months in which the business has delivered so many critical elements of the turnaround plan.”

At the beginning of August, C.banner, the Hong Kong-listed owner of Hamleys, pulled out of a commitment to invest £70m in House of Fraser, which left the company in a precarious position amid falling high street sales and increased migration to online shopping.

“A race against time,” was how Alan Hudson, one of House of Fraser’s joint administrators, described the efforts to find a buyer for the business. “We are pleased that we have been able to successfully conclude a sale of the business in short timescales which preserves as many of the jobs of House of Frasers employees as possible. We hope that this will give the business the stable financial platform that it requires to flourish in the current retail environment,” he said.

House of Fraser’s 59 existing stores will pass into Sports Direct’s control as will the company’s workforce of around 16,000, the vast majority of which are retail workers. These jobs will be protected in the short term. Under the company’s previous owner – Nanjing Cenbest – plans were in place to close 31 of House of Fraser’s stores via a company voluntary arrangement (CVA). The closures would have resulted in around 6000 job losses. However, that deal lapsed when the company went into administration. CVAs have become increasingly common in the UK’s retail industry. In addition to House of Fraser, Poundworld, Carpetright, Mothercare, The Original Factory Shop, New Look, Select and Homebase all launched CVAs in 2018 as the retail market became increasingly challenging.

“We will do our best to keep as many stores open as possible,” said Mike Ashley founder and chief executive of Sports Direct. “My ambition is to transform House of Fraser into Harrods of the High Street. This is a massive step forward and further enhances our strategy of elevation across the group. This will benefit both House of Fraser and Flannels in the luxury sector,” he added.

House of Fraser’s debt and pension obligations were not included in the sale, however. The company had around £400m of debt, and according to the agreement secured lenders will be able to recoup around 22p in the pound. The store chain’s suppliers are expected to receive 3p in the pound.

House of Fraser’s pension fund will now be assessed by the Pension Protection Fund (PPF). As the fund is in surplus by about £20m as measured by the PPF, it is possible the scheme could be taken over by an insurance firm. However, any deal is still likely to fall short of previously promised benefits.

Given the state of the UK high street, there have been suggestions that the government may intervene and impose an ‘Amazon tax’ on online sales. Chancellor Philip Hammond said: “We want to ensure that the high street remains resilient, and we also make sure that taxation is fair between businesses doing business the traditional way, and those doing business online. We may have to look at temporary tax measures to rebalance the playing field until we can get international agreements sorted out.”

Following the sale, House of Fraser cancelled online orders and closed its website after the company’s warehouse operator, XPO Logistics, ‘paused’ processing orders amid a dispute over payment. XPO and thousands of other House of Fraser suppliers are believed to be owed around £60m.

Richard Summerfield