The retail restructuring specialist Hilco and the private equity firm OpCapita are through to the second round of bids for Comet, the ailing UK retailer Kesa Electricals is trying to sell.
The Independent reported that contrary to reports over the weekend, Hilco is still in the running to acquire Comet.
Beyond OpCapita and Hilco, it is unclear whether any other bidders have been taken through to the second round of bids, which are due before the end of August. It is understood that GA Europe, the retail restructuring firm, and Weight Partners, the investment company, are out of the running.
Ideally, Kesa wants to get a sale-and-purchase agreement in place for Comet and for the acquirer to complete their due diligence before its annual meeting on 15 September.But sources close to the company have denied a firm timetable.
Kesa would then put the sale of Comet to shareholders later in September and do the deal before the middle of October. Knight Vinke, the shareholder, which had a 19.3 per cent stake in Kesa, is keen for the group to offload Comet. But then on Tuesday Kesa announced that Knight Vinke upped its holding in the company from 102,273,208 shares to 105,973,208 shares giving the investor a 20.01% share of Kesa.
Kesa is considering only going-concern bids for Comet and has ruled out proposals that wanted to put the UK chain through an insolvency procedure, such as administration. However, the potential sale of Comet is complicated, partly as City analysts forecast it will make another loss this year. A key barrier is that Comet has a pension deficit of £40.7m (not £50m as reported previously) and it is unclear whether a potential buyer would have to take on all, or part, of this liability.
There has been speculation that Kesa is prepared to pay the acquirer a dowry of up to £100m to cover the pension deficit and trading losses although there is some dubiety surrounding this notion.
All parties mentioned declined to comment.
This Is Money however have uncovered that Comet has filed documents that show how unprofitable electrical retailing on the High Street has become without relying on the sale of extended warranties.
The figures, retrieved from Companies House by Financial Mail, show that the 249-store chain made a loss of £40 million in the year to April on sales of £1.5 billion before money from selling extended warranties was included.
This is understood to have cut the group’s total losses to below £10 million. Comet wrote off £16.5 million in the year, including the cost of closing stores and redundancies.
There is much speculation that a buyer may have to close stores to stem losses and it is unclear how far the cuts will have to extend in order to stem the losses or if there will be any impact on Commet’s service and logistics areas at this point although the sentiment thus faris that cuts in both are almost inevitable.
Financial Mail has also learnt of a plan by one firm to acquire some of Comet’s loss-making stores and turn them into discount warehouses in the run-up to Christmas.
An extended warranty is an insurance policy that electricals retailers offer on all goods.
They have been subsequently rebranded as service or maintenance agreements with retailers offering help to install and operate products as well as insuring them. The market came under scrutiny in 2002 and has since been the focus of investigations by the Office of Fair Trading and the Competition Commission. In 2003 the Commission decided the market was ‘unfair’ and operating within a ‘complex monopoly’. The latest study was launched by the OFT in April.
Kesa may yet decide to keep the chain and continue the restructuring of the business itself but this is considered to be a highly unlikely outcome.