BHS faces cru­cial vote on its fu­ture

The Pak Banker - - COMPANIES/BOSS -

It is crunch time for one of the UK's best-known High Street names, the trou­bled depart­ment store, Bri­tish Home Stores (BHS). Its cred­i­tors will vote on Wed­nes­day on a deal it des­per­ately needs to cut the rent bill for its 164 UK stores.

The loss-mak­ing re­tailer cur­rently has debts of over £1.3bn, in­clud­ing a pen­sions deficit of £571m. BHS was bought by bil­lion­aire Sir Philip Green for £200m in 2000, but he sold it last year for just £1. It is now owned by Retail Ac­qui­si­tions, a con­sor­tium of fi­nanciers, lawyers and ac­coun­tants.

BHS - which has been loss-mak­ing for seven years - wants its cred­i­tors to agree to a Com­pany Vol­un­tary Ar­range­ment (CVA). In ef­fect, this is a com­pro­mise fi­nan­cial deal which de­pends on them ac­cept­ing re­duced rents. Oth­er­wise BHS is likely to end up in ad­min­is­tra­tion, plac­ing the jobs of its 10,000 work­ers at risk.

BHS says a deal to cut its rental costs is vi­tal in or­der to turn around the loss-mak­ing busi­ness. "Al­though a dif­fi­cult process to go through, this sets in mo­tion the com­pre­hen­sive up­dated turn­around plan," says its chief ex­ec­u­tive, Dar­ren Topp.

The re­tailer has di­vided its stores into three groups - de­pend­ing on their prof­itabil­ity. For 77 stores the rents it pays will re­main un­changed, while for 47 stores BHS is "seek­ing a re­duc­tion in rent to mar­ket lev­els".

Its least-prof­itable 40 stores will con­tinue to trade for a min­i­mum pe­riod of 10 months while talks go ahead "to re­duce rents sub­stan­tially", says the re­tailer. At Wed­nes­day's meet­ing BHS needs 50% of its land­lords and 75% of its cred­i­tors to agree to the deal.

How­ever, Julie Palmer, retail an­a­lyst at in­sol­vency ex­perts Beg­bies Traynor, says BHS is con­fi­dent it will get an agree­ment. "It is pass­ing the buck es­sen­tially to the land­lords - with prom­ise of a re­duced but con­tin­ued rental in­come for the next 10 months." Mr Topp said a deal would give BHS "a se­cure fi­nan­cial foot­ing from which to grow and de­liver sus­tain­able prof­itabil­ity". BHS is also in talks to ad­dress its pen­sion deficits with the Pen­sion Pro­tec­tion Fund, the gov­ern­mentsup­ported res­cue agency, as well as the Pen­sions Reg­u­la­tor and the BHS pen­sion trustees.

BHS in­sists that it con­tin­ues to meet its pen­sion pay­ment obli­ga­tions. But in BHS's CVA sub­mis­sion, the re­tailer's di­rec­tors are clearly hop­ing that the two pen­sion schemes will be trans­ferred into the PPF and that the com­pany would have no fur­ther li­a­bil­ity to fund it. Yet even if land­lords agree a deal, BHS warns that it needs ex­tra fund­ing to trade be­yond 25 March and it is try­ing to raise £100m.

Char­ter-Time Warner Ca­ble merger won't ac­tu­ally kill ca­ble com­pa­nies. As fed­eral au­thor­i­ties pre­pare to ap­prove a deal, it could rein­vent ca­ble providers. For decades, there was prac­ti­cally no regulation of ca­ble TV ser­vice. This had left con­sumers at the mercy of ca­ble providers. For many years, the ca­ble com­pany was the only provider of video at home, in most parts of the coun­try. Video was sent via a ca­ble box be­long­ing to the ca­ble com­pany and run­ning a pro­gram's guide in­ter­face rem­i­nis­cent of 1970's-era com­put­ers, not only pre­dat­ing Win­dows, but also pre­dat­ing DOS 1.0. The setup in ca­ble TV has been very much like the pre-1981 MA Bell mo­nop­oly: The com­pany owns the ap­pli­ance (box, tele­phone) and you have to rent it. You can only buy chan­nels in bun­dles. Even if you watch only five chan­nels, you have to buy bun­dles of over 100 chan­nels to cover the five you want, and you must pay for all of them.

How­ever, in the last cou­ple of years, rad­i­cal change has ar­rived to the video-at-home mar­ket. The emer­gence of in­ex­pen­sive "smart" TVs al­lowed for new stream­ing video com­pa­nies such as Netflix NFLX -1.25% , Hulu, and Ama­zon AMZN 1.18% to reach home con­sumers by­pass­ing the ca­ble com­pany. For those TVs that were not-sos­mart, add-on hard­ware such as Roku, Ap­ple AAPL 0.70% TV, and Ama­zon Fire TV en­sured that the stream­ers had ac­cess to the TV, again by­pass­ing the ca­ble box. With ca­ble ser­vice prices and ca­ble boxes' rental fees sky­rock­et­ing, hun­dreds of thou­sands of ca­ble cus­tomers have cut the ca­ble cord.

In this en­vi­ron­ment, The Wall Street Jour­nal re­port­edthat Fed­eral Com­mu­ni­ca­tions Com­mis­sion Chair­man Tom Wheeler is pre­par­ing to cir­cu­late a draft or­der to ap­prove Char­ter Com­mu­ni­ca­tions' deal to buy Time Warner Ca­ble-a merger that could very well open­com­pe­ti­tion for ca­ble TV boxes. Such reg­u­la­tions level the play­ing field of com­pe­ti­tion be­tween the ca­ble com­pany and the stream­ing ser­vices. The big ben­e­fi­cia­ries are the con­sumers who will end up pay­ing only for what they watch, and pay­ing much less. Ex­pect mil­lions to cut the ca­ble cord. And in­no­va­tion will fi­nally reach the ca­ble TV world. With 40 years' de­lay, we might see a TV pro­gram­ming guide with a graph­i­cal in­ter­face and 21st-cen­tury search ca­pa­bil­i­ties.

As tra­di­tional mo­nop­o­lists, ca­ble com­pa­nies will fight tooth and nail to pre­vent this change that will cut sig­nif­i­cantly into their rev­enues. But is this the demise of ca­ble TV com­pa­nies? Not at all.

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