Edcon dodges liquidation
SA’s iconic Jet and Edgars fashion brands live to see another day and thousands of jobs are likely to be saved in the process
Edcon’s sale of Jet and Edgars, the insolvent fashion group’s two key assets, disproves the general perception that business rescue typically fails. The practice was introduced in SA in May 2011 under the Companies Act and often leads to liquidation.
Once SA’s largest fashion retailer, the embattled Edcon group was placed in business rescue at the end of April after it incurred R2bn in Covid-induced sales losses and could no longer pay its debts. Edcon owes suppliers, landlords and other creditors about R6.7bn.
Industry players didn’t expect there to be much interest among major suitors in salvaging Edcon’s business. But earlier this week The Foschini Group (TFG) emerged as the successful bidder for the bulk of Jet stores. The TFG deal follows last week’s announcement that the Retailability apparel group (owner of the Legit brand) is buying a number of Edgars stores.
TFG’s R480m cash offer to acquire 371 of the existing 472 Jet stores will enable the retailer to vie for a larger slice of SA’s lucrative value-fashion segment. The details of the Edgars deal are yet to be disclosed but the FM believes Retailability’s offer is of similar value to that of TFG’s. The group will cherry-pick the most profitable of the 178 Edgars stores.
Critically, the deals are expected to save the jobs of thousands of the 17,000 permanent staff Edcon employs.
Edcon was placed in business rescue only a year after embarking on a restructuring exercise under CEO Grant Pattison, who secured a R2.7bn bailout plan funded by the Public Investment Corp, landlords and other creditors.
Lance Schapiro of Matuson & Associates, Edcon’s business rescue practitioners, describes the sale of both the Jet and Edgars brands as a "remarkable step" and says it gives credibility to Edcon’s business rescue plan. It will, of course, also go some way to help repay the debt owed to suppliers and landlords.
On how many jobs will be saved, Shapiro says it’s difficult to quantify because these details still need to be finalised. Both purchase offers are still subject to various conditions and regulatory approvals.
However, Pattison, who will be assisting the business rescue practitioners to wind up Edcon over the next few months, is confident that the jobs of at least half of the group’s 17,000 employees can be saved. He says it’s going to hinge on how many Jet and Edgars stores are kept open, which in turn will depend on discussions between the new owners and landlords.
Pattison adds that a number of Edcon employees may also still opt for voluntary retrenchment under section 189 of the Labour Relations Act — the process was initiated last month.
Though Edcon’s business rescue practitioners said in an earlier statement that Jet and Edgars stores that aren’t sold will be shuttered permanently in August, Pattison says the business rescue process is not over yet. He says efforts to maximise returns for creditors will continue. He adds: "It’s not impossible that someone else would want to buy the remaining Jet and Edgars stores now that the TFG and Reliability deals have been announced."
It’s not yet clear how many Edgars stores are still up for grabs but Pattison stresses that at least half the existing 178 stores are profitable. Most of these have a footprint of more than 3,000m².
The next step in the business rescue process is to sell Edcon’s debtors book (goods sold on credit to Edcon account holders) and its life insurance and funeral policy business. The proceeds of these sales will determine what portion of Edcon’s debt will ultimately be recouped. But Pattison says the fact that liquidation has been averted is the best outcome he could have hoped for as it means secured creditors will get more cents in the rand back.
Last month, Matuson & Associates said that in a wind-down process (or an accelerated sale of parts of the business), secured creditors would receive 19c in the rand. That compares with only 5.5c in the rand in a liquidation. In fact, unsecured creditors are likely to get nothing back in the latter case.
The acquisition of Jet and Edgars is particularly good news for landlords. As Nedbank analyst Ridwaan Loonat points out, the closure of all Jet and Edgars outlets would have added to the woes of mall owners, whose profits have already been eroding as a result of rising vacancies and falling rentals. Besides, vacant space would prove challenging to fill in the current constrained economy with limited new demand for space.
However, Loonat says it’s early days: "The sector will still have to wait and see just how many stores are kept open."
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