Phones 4u enters administration

November 2014 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

British mobile phone retailer Phones 4u entered administration in mid September following the announcement that EE, which owns the Orange and T-Mobile brands, would not be renewing its contract with the firm. It is believed that approximately half of Phones 4u’s 5.4 million customer base were EE subscribers.

Although EE’s contract with the company was not due to end until September 2015, the network withdrew its business from Phones 4u early. By walking away from their agreement with Phones 4u, EE followed in the footsteps of fellow mobile networks Three and O2, which both withdrew their handsets from Phones 4u’s stores earlier this year. EE, believed to have accounted for around half of Phones 4u’s £1bn sales, made its decision following a strategic review.

The end of the relationship between EE and Phones 4u is part of a growing trend in UK retail. Increasingly, mobile networks are cutting out the middle men and concentrating on selling devices in their own retail stores. This allows them to capture more of the margin on their own products.

The collapse of Phones 4u caught the UK’s retail market off guard. According to a statement from the company, Phones 4u has boasted a healthy balance sheet in recent years. In 2013 the company recorded profits of more than £100m from revenues of £1bn. Yet, despite the company’s profitability, the loss of network support meant that the group but had little option but to enter administration. David Kassler, chief executive of Phones 4U, noted that “if the mobile network operators decline to supply us, we do not have a business.” The collapse of Phones 4u is the UK high street’s biggest casualty since electrical retailer Comet Group entered administration in November 2012.

Phones 4u, owned by private equity firm BC Partners, officially ceased trading on 17 September, resulting in the closure of 720 stores. The move jeopardised 5596 jobs. Two days after the company entered administration, nearly 900 Phones 4u jobs were saved when Vodafone agreed to acquire around a quarter of the company’s stores. Under the terms of the agreement, Vodafone will take over the management of 140 Phones 4u stores and will retain all existing staff. However, at the time of writing Vodafone had not confirmed which stores it had agreed to buy or how much the deal was worth. Before the details can be released, the deal must be approved by the courts. In a statement announcing the sale Rob Hunt, a partner at PwC, Phones 4u’s administrator, said “We have worked rapidly over the course of the week following our appointment to explore interest in the Phones 4u business and we are very pleased to secure a future for a significant number of stores and continued employment for 887 of the Phones 4u people. While this deal remains subject to the approval of the UK courts, we are confident that this represents the best available transaction for the company’s creditors.” Owners of £430m of Phones 4u bonds had proposed swapping their debt for shares in the business so the company could keep trading, however PwC rejected the scheme.

EE, Britain’s biggest mobile operator, announced on 22 September that it too had entered a deal to acquire a number of former Phones 4u units. The network will take control of 58 stores, a move which will save 359 more jobs. Despite PwC’s best efforts, 628 redundancies at Phones 4u’s head office in Newcastle-under-Lyme, Staffordshire, were announced shortly after the firm entered administration. Around 400 employees will be retained to work on the administration.

The loss of Phones 4u leaves just one independent mobile phone retailer on the UK high street: Dixons Carphone. The firm was created earlier in 2014 following the merger of electrical retailer Dixons and the Carphone Warehouse.

Richard Summerfield