Wilko buyers will have to put up to £70m into the struggling discount chain in order to save it this weekend.
Wilko was forced to submit a notice last week of its intention to appoint an administrator to keep creditors away, causing a rush to find a purchaser within two weeks.
PwC, Wilko’s advisers, is in discussions with two private equity firms and a rival discount retailer about a possible rescue deal. This would include reducing rents for Wilko’s 400 stores through a Company Voluntary Arrangement (CVA).
The capital injection needed casts doubt on the possibility of a sale that would preserve 12,000 jobs. To get the supplies flowing into Wilko shops again, any buyer would have to inject between £25 million and £30 million. Hilco is owed a huge amount of money, and Wilko would need to pay another £40 million to clear the debt.
The Pensions Regulator has been in talks with the retailer about the future of its pension plans, which include more than 12,000. The defined-benefit plan, which was closed in 2013, had a deficit of £50m on a purchase basis. The trustees took security of £20 million on Wilko’s assets.
Mark Jackson, chief executive of the chain, stated that it received an indicative proposal that met its criteria. However, a deal couldn’t be done quickly enough. Mike Ashley’s Frasers Group has not entered into negotiations over a possible deal. Hilco also does not appear to be interested in gaining control.
If no buyer is found, Wilko may be sold via a prepack administration which would lead to shop closures. In the event that this fails, the shops would be closed with the stock being liquidated. The returns for unsecured creditors such as suppliers and tenants would be minimal.
The Reverend Richard Coles, the actor Adil Raymond and other high-profile Wilko fans expressed shock when they heard that the discounter is on the verge of bankruptcy last week. Anyone who has noticed the empty shelves at the retailer over the past few years can see the signs.
Wilko struggled to get the stock it needed into its stores during the pandemic, resulting in a lack of cash to pay suppliers. This spiraled the company into a downward spiral.
Teneo restructuring experts warned Lisa Wilkinson (granddaughter of founder JK Wilkinson) more than a year earlier that the discount chain, if it didn’t undergo a major restructuring, would be out of money by September. The family would have needed to invest between £15 and £20 millions in order to support a restructuring.
Wilkinson resisted, choosing instead to sell the distribution centre and bring in a management team to turn around the business. He also took an emergency secured loan of £40 million from Hilco, a distressed lender. Suppliers and landlords would be severely affected if the chain went into administration.
It wasn’t clear if they didn’t know how much money to invest or if they simply didn’t care. But there was certainly some hubris. A source told us that the situation is a complete mess.
Jackson said Wilko’s turnaround plan is credible and that shareholders have consistently shown their strong support for the company, as demonstrated by the sale of the warehouse and the relinquishment of security over other assets.
Wilko was founded 93 years ago in Leicester as a hardware store. It was one of Britain’s first discounters. However, the rapid growth of pound stores in the aftermath of the financial crisis weakened its pricing position.
This was made worse by the rapid growth of Amazon, and by the success of B&M & Home Bargains who aggressively opened up in the retail parks which were sucking the trade away from Wilko’s struggling town centres. The revolving-door of executives made matters worse.
Wilko was long considered ripe for restructuring by insolvency experts. The chain was paying rents at a rate of about 50% over the market, which equated to an extra cost per year between £35 and £40 million.
The wet weather and unpaid debts were hampering Wilko’s sales by the time it was ready to launch its company voluntary arrangement last month.
Management had no choice last week but to submit a notice to appoint an administrator after a supplier filed for winding up and GXO, its logistics provider, halted delivery. (GXO resumed deliveries since then).
The high street romantics still hope for a white knight to ride in and save Wilko, but Woolworths’ fate shows that nostalgia doesn’t matter much when it comes to crisis. Some people believe that Wilko’s current situation was avoidable.
In the North, there’s a saying that goes: “Clogs to Clogs in Three Generations”. The first generation begins it, the next generation succeeds and the third loses it. “That is exactly what happened to the Wilkinson Family,” said a source in the industry. It is a shame that a family-owned business appears to be on the verge of failure. The situation could have been avoided had it been managed more entrepreneurially.”