Purplebricks warned investors they would receive little or nothing if the company found a buyer. This morning, shares in the struggling online estate agent fell even more.
The company has been advertising “for sale” since March, but it has not yet reached a deal. It insists it is still in negotiations with “a small number of parties”.
Purplebricks believes that even if a company made a firm bid, it would still “deliver materially lower returns to shareholders than the current share price of the company”.
Shares, which already had lost two-thirds of their value after Helena Marston became chief executive last spring, dropped by 3 1/4p or 60.4% to 2 1/4p today. Purplebricks’ stock value, which was almost £1.5 billion at one time in 2017, is now less than £7million.
According to Michael and Kenny Bruce, the brothers who founded the business, the agency was expected to revolutionize the way people buy and sell houses.
Purplebricks quickly gained marketshare, but traditional agents made more money than they ever had in years during the pandemic. Purplebricks’ recent performance was marred by boardroom missteps and management changes, as well as a string warnings about profit.
Today, another warning was issued. The company received fewer orders than expected after increasing its prices sharply this year. The bosses expect that this will hamstring their business in this financial year which runs from April to May, and revenue and profits are likely to be lower.
Marston, 42 years old, was promoted with the promise that she would turn the business around and generate cash. This summer, a return to profitability had been planned. Her attempts to fire underperforming agents, remove a money back guarantee, and revert the advertising campaigns of her predecessors have all failed.
This year, she admitted that her changes caused “more disruption in the short term” than expected. Staff morale is believed to have been affected by recent cost-cutting measures and redundancies.
Purplebricks has now admitted that it will be “unlikely”, to return to cash-generation any time soon. It only has £9.1million left in the bank. Purplebricks is burning through cash at a rate of £850,000 per week, despite Marston’s assurances that she would control the cash burn.
Purplebricks’s company that handles upfront payments has begun to withhold some of the money that it has received. The lender who provides the “pay later” option is also weighing its options. If a new deal cannot be reached, Purplebricks would have to reduce its cash reserves.
The bosses have looked into raising money from investors but, with the current share price, they have decided that it would be impossible to receive the necessary support. In light of this, the board feels it necessary to complete the strategic review and formal sale process quickly and in a way that gives more certainty about the future ownership of the group [and] provides the business access to additional financing,” Purplebricks stated in its statement.
Strike, an online rival estate agent, is the only party named. It says that several parties are interested but none have been identified. Strike must make an official offer by tomorrow or abandon the deal.
Axel Springer is another party that has been mentioned in the media. It’s the German publishing and media house, and Purplebricks largest shareholder. In March, it made headlines when its representative Ait Voncke was removed from the board.