Matalan’s founder has signalled he will participate in a recapitalisation process for the discount retailer, ending speculation that he may walk away from the business.
John Hargreaves said Matalan, which sells fashion and homeware from more than 200 stores, “has been in my DNA since the day I founded it in 1985”.
“I am stepping down as chair so that I can participate in the strategic sales process as a bidder,” he added. “My intention is to be instrumental in positioning the business for long-term success.”
The 78-year-old, Monaco-based businessman lost a high-profile battle with UK tax authorities this year, leading some to question whether he would have the desire to inject more into the company he took private in 2006.
The Liverpool-based group is burdened with more than £500mn of debt from an earlier recapitalisation and needs to refinance £350mn of this in 2023.
The company said on Monday that it had agreed with “over a majority” of the holders of this tranche to extend the maturity by six months, to July next year, allowing a bidding process for the retailer to take place. The noteholders have also agreed to provide up to £200mn of financing to any party interested in acquiring the company.
If the sale process does not lead to a transaction, the noteholders have committed to an alternative recapitalisation plan that would “result in a material reduction of Matalan’s debt” and an extension of the £350mn tranche of debt by more than four years, to September 2027.
Although the company has put itself up for sale, bankers and analysts said the secured creditors had in effect forced its hand and would end up in control of the business if an alternative owner did not come forward.
The offer of a £200mn financing package implies that any bidder would have to inject about £150mn of fresh equity in order to refinance the 2023 debt, they added. In that scenario, the existing equity would probably be worthless.
Hargreaves remains a natural owner given his deep knowledge of the business and the ties between Matalan and other companies owned by his family. In 2020, he injected additional funds into the business by buying its headquarters building and converting some debt into equity.
Trading at Matalan has recovered well since the height of the pandemic, with the company reporting second-quarter sales of £286mn, up from £265mn last year, but a slip in profit as costs increased.
The company said it was cautious about the impact of inflation on consumers’ budgets and that it faced significant cost pressures, notably in freight where costs will be £35mn higher than pre-pandemic levels this year and next. Energy prices will also be significant next year, once hedging protection falls away
Matalan has set out a business plan that envisages revenue rising to £1.44bn by 2026, up from £1.03bn last year, with ecommerce accounting for a quarter of that total against less than a fifth at present.