Edcon is worth saving, say business rescuers

• Retailer was forced to shut its stores after government suspended all nonessential shopping

Edcon, SA’s biggest corporate casualty of the Covid-19induced rolling economic calamity, may still be saved.

Like other retailers, Edcon was forced to shut its stores after the government suspended all nonessential shopping. But with a weak balance sheet, it felt the most pain, forcing it to file for business rescue two weeks ago, triggering talk that the legal process to reorganise the company was a nonstarter.

Business rescue is a process that enables a financially distressed company to temporarily delay creditors’ claims against it or its assets while business rescue practitioners (BRPs) determine if it can survive.

“It is the view of the BRPs that, notwithstanding inevitable risks and challenges, there is a reasonable prospect of rescuing the company,” the rescue team from Matuson & Associates told creditors in a presentation, a copy of which Business Day has seen, this week.

The assessment of Piers

Marsden and Lance Schapiro, who have been picked to run the process, paves the way for them to devise a plan to save the retailer, which employs 17,500 permanent workers and 5,000 seasonal workers.

Creditors such as the Public Investment Corporation (PIC), a R2-trillion public servants’ pensions investor, are due to meet again in the middle of June to consider and vote on whether the plan is the best way to recoup their investments.

Edcon’s woes underscore widespread financial pain inflicted on corporate SA in an economy that is forecast to be hit by one of its biggest recessions to date.

“We believe that the business rescue process will achieve a better outcome for all stakeholders than a liquidation,” Matuson & Associates said in the presentation, citing the group’s well-known brands that include lower to middle-market department store chain Edgars and its budget-friendly Jet outlets. The business rescue team said that

Edcon’s established retail footprint as well as continuing support from employees, unions and suppliers were reasons to believe it was worth giving the company another shot.

But rehabilitating Edcon might be difficult as CEO Grant Pattison has already shrunk it, cutting jobs, selling assets and leaving it at half the size he considered healthy in normal economic conditions.

Edcon, whose future has been shaky for much of the past decade, could also face even weaker demand in the next months because the economic toll of the pandemic is likely to be felt mostly in the company’s consumer heartlands: the middle class and low-income households.

The company, which ironically traces its roots back to the time of the Great Depression in the late 1920s with the first Edgars store in the Johannesburg city centre, narrowly avoided going under in 2016 after Bain gave up equity control to group creditors that included Standard Bank and Absa, helping it slash its heavy debt pile by nearly 80%. With sales figures slumping in 2019, Pattison enlisted the PIC to lead a R2.7bn cash injection effort that enabled the company to cut rental payments in exchange for shopping-mall owners taking equity stakes.

Edcon was finally pushed over the edge two weeks ago after the government ordered nonessential retailers to close their stores, eroding its already tight cash flows and causing it to fail to pay suppliers.

One creditor, who attended the meeting and is in the process of submitting his company’s claims, said the business rescue team’s assessment meant “a long wait for the money, if at all”.

The business rescue process began on April 29.

Claims by creditors before this date have been ring-fenced. Any claims lodged after this date will be dealt with by the business rescuers. There is no deadline for new claims, according to the presentation.

The business rescue team has suggested the setting up of a creditors’ committee to enhance the rescue process. Nominations for the committee have been opened. They have also proposed that an independent third party act as an independent chair of the committee.

Committees should also be set up for employees, landlords and lenders to “assist in achieving the goals set out in the business rescue plan”.

THE TEAM HAS CITED AN ESTABLISHED RETAIL FOOTPRINT AND WELL-KNOWN BRANDS AS REASONS FOR GIVING IT ANOTHER SHOT