Wednesday 18 May 2022

Cost Of Morrisons Rescue Deal For McColl’s Revealed

Administrators’ documents show Morrisons paid the equivalent of £182m to rescue McColl’s.

Morrisons won by promising more cash for unsecured creditors and leveraging its position as McColl's main supplier.

McColl’s had an equity value of around £3m by the time its shares were suspended on 6 May. However, regulatory documents published by administrators PwC revealed that senior creditors were owed £160m.

PwC’s account of the chain’s final months show that four credible bidders had emerged for McColl’s, but that had narrowed to three by the time shares in the group were suspended.

The PwC document noted: “Any buyer would need to have the capacity to supply the entire store estate, possibly in a short space of time. All parties realistically capable of doing this had already been approached.”

Both EG and Morrisons submitted offers that included the retention of the entire estate of almost 1,200 stores, the rescue of McColl’s pension schemes, the costs of the administration, and full repayment of secured bank lenders and preferential creditors such as HMRC.

McColl’s had been in talks for several months with its lenders and Morrisons for financing to secure its long term future. In March, its Chief Executive Jonathan Miller stepped down after the business endured torrid trading conditions and supply chain issues that impacted its revenue and profit.

Commenting on the deal last week, Morrisons’ Chief Executive David Potts said: “...we believe this is a good outcome for McColl’s and all its stakeholders. This transaction offers stability and continuity for the McColl’s business and, in particular, a better outcome for its colleagues and pensioners.”

The wholesale agreement will continue without interruption.

McColl’s has converted 270 shops to Morrisons Daily, “fundamentally reshaping the business into a more profitable and sustainable model”.

In November, it announced that it would accelerate the number of conversions to 450 within a year.

The rollout is expected to continue and provide Morrisons with a significant presence in the convenience channel to challenge chains such as Tesco Express and Sainsbury’s Local.

NamNews Implications:
  • In other words. Morrisons’ £182m offer covered:
    • Retention of the entire estate of almost 1,200 stores
    • The rescue of McColl’s pension schemes
    • The costs of the administration
    • Full repayment of secured bank lenders
    • And preferential creditors (HMRC)
  • It follows that McColl’s will be run on strictly financial terms going forward.
  • All part of the New Norm…
  • Key that suppliers run a financial check over major customers.
  • i.e. given your exposure, what incremental sales would cover your credit exposure, if a customer got into terminal difficulties.
  • In the process, why not reclassify your major customers as Invest, Maintain or Divest?

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