Sir Philip Green’s Arcadia Group could take up to two weeks to win over landlords who spurned a planned rescue restructure and stave off the collapse of the business, which employs 18,000 people.
The group, which agreed a week-long adjournment of a vote on its rescue plan on Wednesday, is allowed to delay for up to another week under insolvency rules as it battles to win over detractors, including major landlords Land Securities and Intu.
Arcadia’s restructure is complex, involving seven interlinked insolvency procedures known as company voluntary arrangements. Each of these had to win approval from 75% of all creditors, including the Green family. They also had to secure the backing of more than half of “unconnected” creditors – which in the case of Arcadia’s CVAs were almost entirely landlords. The company wants to close about 50 of its 570 UK stores and cut rents on up to 200 more.
Landlords hold much more power over Arcadia’s future than a number of other similar retail restructures because its plan involves a string of property companies that have been separated from the stores’ operating companies, making landlords the major creditors.
So what could Green and Arcadia – whose brands include Topshop, Topman, Miss Selfridge, Burton and Wallace – offer to persuade key landlords to change their minds?
Offer landlords more cash or equity in the business
Arcadia and the Green family have so far offered landlords a 20% share in the proceeds of any future sale of the retail group and a £40m compensation pot. Either or both of these offers could be increased, although many landlords are not tempted by the prospect of a stake in a business that is seen as close to worthless in its current state.
Cancel some planned store closures, reduce rent cuts or lengthen landlord break clauses
Only some landlords, led by the Trafford Centre owner Intu, are against Arcadia’s restructure plan; other major players, including Hammerson and British Land, have already agreed. At least one, Land Securities, is understood to be on the fence. Waverers would be won over with less severe rent cuts, ditching some planned closures. Under the current deal, landlords of stores subject to severe rent cuts only have a year in which to oust Arcadia if they find a better deal elsewhere. That period could be lengthened. Such modifications would have to be agreed by all creditors in a vote, so any move that appeared to favour one landlord over others could cause backers of the current deal to change their view. It is risky but if delicately handled may achieve the required result.
Invest more in a turnaround plan
Many landlords think the wealthy Green family, who are known to have taken chunky payments out of Arcadia as recently as 2017, are capable of investing far more in the retail group than is currently on the table.
So far, the Greens have offered to invest £50m in cash in a turnaround plan. Upping the level of investment in Arcadia’s stores and online service to help it compete with companies such as Asos and Zara may give landlords the confidence to believe the group can survive.
Of course, it would also be possible for the family to ditch plans for the CVA and try to turn the business around without it. That is highly unlikely, given the slump in trade on the high street as clothing sales move online.
Plan for a pre-pack administration of a viable part of the business
With a potential failure of the CVA plan on the cards, Arcadia and its advisers at Deloitte are already likely to be considering a plan B. This could include filing a legal notice to appoint administrators that would give the company at least 10 days to organise a pre-pack administration – a prearranged takeover of assets – that would allow the Greens to acquire the most viable part of the business.
They may not have performed brilliantly in recent times but Topshop and Topman are still seen as attractive chains. The Greens could organise a deal that leaves these chains intact while the others are closed or left for administrators to pick over.
Such a plan could make a lot of business sense but would put thousands of jobs at risk, bringing further damage to Green’s reputation.
Let the whole group fold
The nuclear option would be administration of the whole Arcadia group. Green is highly unlikely to want to take this road as it would deal a major blow to his finances and business reputation. Such a move would also open the door for a string of business rivals, from the Sports Direct boss Mike Ashley to the Edinburgh Woollen Mill owner Philip Day, to pick over the bones of his retail empire and potentially highlight the details of what went wrong.
