He did so immediately after HoF went into administration. Apparently Mr Ashley had something of a "long-held ambition" to acquire House of Fraser. Even though the deal has been done, the HoF news stories keep coming. For example, we hear that:-
- Philip Day of Edinburgh Woollen Mill fame is attempting to get some of the House of Fraser stores from under Mr Ashley's nose;
- Mike Ashley hopes to keep 47 of the 59 stores open;
- concessionaires within the House of Fraser stores are not co-operating and some at least have withdrawn from the stores; and
- the HoF website has gone down amid a dispute between Sports Direct and the operator of the main HoF distribution warehouse.
However, on the upside, an arrangement has been reached with a caterer for HoF cafes to remain in operation.
So there is a lot going on and it is clear that "buying/rescuing" HoF from administration is not the end of the story.
HoF sale - "Everything must go"
House of Fraser was struggling and proposed a company voluntary arrangement ("CVA"). (Actually there were 2 companies involved and they both proposed a CVA). The CVA proposals were approved by creditors but a challenge to the CVAs (or to at least one of them) was launched by landlords. It would appear that those landlords agreed to withdraw their challenge upon payment of £1m by HoF. At some point, while the legal challenge was in the offing, a Chinese company that had intended to inject funds into HoF if the CVA had been successful, indicated that it was no longer prepared to do so. There was then a flurry of activity when various parties (including Mike Ashley and Philip Day) expressed interest in "rescuing", "saving" and/or "buying" House of Fraser or bits thereof. It was reported that Mike Ashley's proposal had been unsuccessful as he was only prepared to do a deal through a pre-pack administration. Then HoF went into administration and then it was announced that Mike Ashley had bought the business through a pre-pack deal. There seems to be some doubt as to whether or not the £1m payment to landlords was paid.
"Do you need help with your pre-packing, sir?"
It is in the nature of pre-packs that the negotiations for the deal have to take place prior to the company going into administration to allow the deal to be signed immediately upon the administrators taking office. It would appear therefore that, when we were told by the media that Mike Ashley's approach had been rebuffed, that was not the case at all and in fact negotiations must have been ongoing. It is quite possible that negotiations were going on with other parties at the same time and that Mike Ashley happened to be the one who got his deal over the line first. Or perhaps he was simply the one that the administrators decided was most likely to complete a deal quickly.
When I say that "Mike Ashley" acquired something, of course he has not acquired anything personally. It will have been acquired through a corporate vehicle (almost certainly set up specifically for the transaction). It is very unusual for a purchaser of a distressed business to put that distressed business into an existing corporate entity. It is much more sensible to insulate the existing businesses from the acquired business, at least for a period of time, in order to see what comes out in the wash. Indeed one may even see certain assets (e.g. intellectual property, such as brand names and property interests) being separated out into different legal entities as part of the deal or in the future.
Shopping generally involves shops
When it comes to something like HoF, control of the properties is key. The main reason why anyone would be interested in buying an insolvent retail chain is largely because it gives access to a readymade portfolio of high street stores (and thus of course the ability to sell stock). With retail chains, one of the main problems faced by administrators and purchasers is that the property portfolio is almost invariably leasehold. Accordingly it is not within the gift of the administrators to transfer the tenant's interest in the leases to the purchaser at the point of sale. The landlord would need to be onside for that to happen quickly. However, the nature of a pre-pack is such that it is simply impossible for the administrators to get consents from all of the landlords prior to the sale taking place. So, what usually happens is that the administrators grant to the purchaser licences to occupy the various premises for a period of time. These licences are intended to allow the purchaser to trade from the premises without interruption and to give the purchaser the opportunity to negotiate with landlords about taking on the existing lease or being granted a new lease. The licences are granted without the approval of the landlords and may well be in breach of the lease terms.
Helpfully for administrators and purchasers, one of the special features of the administration regime is that the right of a landlord to terminate a lease when a tenant company is in administration is severely restricted. On the other hand, the landlord is effectively guaranteed that, while the premises continue to be used, the rent for that period will be paid as an expense of the administration. The arrangements between the administrators and the purchaser will reflect this and the administrators will almost certainly have put in place arrangements to ensure that the rent for the relevant period is secure.
So I suspect what we are see now is that the purchaser is approaching the landlords (or at least the landlords of those stores that the purchaser wishes to retain - after all some sites are more valuable/profitable than others) and simultaneously it may be that Philip Day is approaching certain landlords trying to persuade them to do a deal with him, rather than with Mike Ashley.
Retailing involves having stock to sell
There are similar issues with regard to stock. As I mentioned above, there were a lot of concessions operating in HoF stores. Concession stock will not have belonged to HoF and the administrators would have no power to deal with that stock. In addition where stock was subject to retention of title ("RoT") terms, administrators have to be very careful about what they do with the RoT stock. Again, if the administrators sell that stock to the purchaser they must account to the owner for the cost price of that stock. Often a deal is struck whereby the purchaser is allowed possession of RoT stock and can seek negotiate with the owner of the stock (the supplier) about a suitable price for that stock. If nothing can be agreed then the stock goes back to the supplier. But the purchaser will want to have stock to sell and so will be keen to reach a deal. The administrators will have provisions in place with the purchaser that ensure that the administrators are indemnified from any loss suffered by RoT creditors.
Upon hearing of HoF going into administration, I wandered down to the Glasgow store. The HoF own brand "Linea" stock was being sold at sale prices, whereas the designer label stuff was still at full price (and what prices they were too!). And that is exactly what I would have expected to see given the obligations on administrators regarding third party stock.
Business as usual?
Buying any business out of insolvency is not an easy risk-free project. The parties that you need to keep the business going (employees, suppliers, landlords, distributors) will often have grievances because of the insolvency and some of them may well be uncooperative. If the retail experience cannot be continued and indeed improved, customer loyalty can easily be lost. Pre-packs are sometimes described as though they are simply a method for a business to shed debt while carrying on in an otherwise unchanged manner. That is rarely if ever the case and when you buy a retail business from administrators you don't get a "satisfied or your money back guarantee".