Struggling sports retailer avoids going into administration, but 43 stores are set to close
Struggling sports retailer JJB will receive a multimillion-pound boost next week when its largest shareholders support a cash call – its second this year – to raise £50m-£110m to prevent the firm collapsing into administration. An announcement is expected as early as Tuesday.
JJB's big stakeholders include Harris Associates, headed by veteran US investor David Herro; Crystal Amber, founded by Richard Bernstein; and the Bill and Melinda Gates Foundation Trust.
The company is in desperate need of good news after it emerged that rival JD Sports had pulled out of merger talks that could have led to the creation of a formidable competitor to Sports Direct, the retailer headed by Mike Ashley, owner of Newcastle United. JD Sports blamed the breakdown of negotiations on the unwillingness of JJB management to give it access to commercial information that could have paved the way for a bid.
JJB, headed by Mike McTighe, a former turnaround specialist at Cable & Wireless, has been fighting for survival after poor sales put it in danger of breaching its banking covenants.
But JJB's disclosure next week that its biggest investors are prepared to stump up more cash does not mean that it is out of danger. McTighe is working on a company voluntary arrangement (CVA) that seeks permission from landlords to close 43 stores and more than halve rents on a further 45, with the possibility they too could close within two years. At meetings on 22 March, 75% of creditors and 50% of shareholders must approve the CVA. Compromised landlords are being offered a sweetener of between £2.5m and £7.5m, depending on JJB's future financial performance.
JJB wants to streamline the company, while spending tens of millions to refurbish 147 outlets to make them more appealing to customers. It says six recently re-formatted shops have boosted sales by around 11%, setting the scene, it hopes, for a recovery in its fortunes. One analyst warned, however: "You can have great management, a compelling financial restructuring plan, but if you aren't selling the goods, it's time for an early bath."
JJB has lurched from crisis to crisis in recent years, with several changes of management since former head Chris Ronnie overstretched the balance sheet by making several ill-starred acquisitions. The group has burned through cash at an alarming rate, while struggling with debt and a stock overhang that has hampered its ability to introduce new lines into its stores.
JJB's ability to continue as a going concern is contingent on creditor and shareholder votes the week after next, but there is no guarantee landlords will toe the line. One of their number, Capital Shopping Centres, has already said it intends to vote against the CVA. Several other large landlords are saying privately they are "minded to vote against".
CVAs have proved unpopular with many property companies because they view the procedure as a way for failing retailers to walk away from their responsibilities.
Landlords take a dim view of JJB because it closed stores via a CVA two years ago, while next week's announcement of fresh fundraising will be the third since October 2009.
In an internal paper last year, Richard Akers, managing director of Land Securities, which lets 10 properties to JJB, said: "There is an increasingly large blot on the landscape. The use of company voluntary arrangements is seriously beginning to damage the fabric of trust that exists in the landlord/occupier relationship."
But investors will be largely supportive because five large American institutions that specialise in investing in undervalued companies today dominate JJB's shareholder register. They are convinced JJB and its 6,000 employees have a future.Their view is supported by JJB's adviser, KPMG, which says compromised landlords will get between 25p and 29p in the pound if they agree to the CVA, but only 1.1p if the company goes into administration.