Edcon’s Schreiber accepts job in Canada
CEO Schreiber to step down in August, but says no job losses planned
JÜRGEN Schreiber, the outgoing CEO of Edcon, had committed to spending some time in South Africa to help the troubled retailer restructure its debt, a company spokesman said on Friday.
Confirmation that Schreiber is committed to finding solutions to Edcon’s crippling R22.6-billion debt burden might provide comfort to bondholders who have seen the value of their investments decimated as Edcon struggled to repay the debt taken out to finance Bain Capital’s purchase of the company in 2007.
But it is difficult to see what sort of commitment Schreiber will actually be able to make to South Africa’s largest retail group, after it emerged that he will be taking up a new fulltime CEO job in Canada.
This week, just hours after Schreiber confirmed that he would not be renewing his contract as CEO but would be staying on as deputy chairman of the Edcon board from August, Canadian company Katz Group announced that he had been appointed as CEO of Rexall Health.
The announcement described Rexall Health as a newly established company that would hold all of Katz’s healthrelated businesses — and said Schreiber would take up the CEO position from August.
A former colleague of Schreiber said the move would facilitate Schreiber’s return to Canada and to an industry with which he was familiar.
Before being head-hunted by Bain to take over from the outstanding Steve Ross as CEO of Edcon in April 2011, Schreiber was president and CEO of Canadian health and beauty retailer Shoppers Drug Mart — described as similar to the Clicks chain.
Schreiber dismissed speculation that his decision to return to Canada was a result of Edcon’s operational and debt problems as the firm continues to lose market share. Some R4.7-billion of loans and bonds has to be rolled over by 2017 and a further R20-billion is up for repayment in 2019.
Analysts say that if its capital restructuring is unsuccessful, Bain may have to consider carving up the group and selling some of its chains, which include Edgars, Jet and CNA.
EDCON, the country’s largest non-food retailer, confirmed this week that it was in talks with lenders over a restructuring of its hefty debt.
Analysts have expressed concern about where Edcon — which owns blue chip brands including Edgars, Jet, Boardmans and CNA — is headed and what it will take to fix it.
In 2007, Bain Capital Partners issued Edcon bonds to help pay the R25-billion price tag for the group in what was at the time, the country’s largest private equity deal. But with the financial crisis, Edcon has struggled to repay this debt.
Two years ago, it embarked on a capital expenditure programme to upgrade stores and has increased trading space by 5%. But concerns that Edcon may not be able to repay bondholders escalated in September last year when Morgan Stanley said in a note that the capital structure was “unsustainable”.
Debt advisory firm Houlihan Lokey and investment bank Goldman Sachs are now assisting with Edcon’s capital overhaul. This includes possible new debt financing.
CEO Jurgen Schreiber, who joined the group in 2011, will step down in August to take up a new role as vice-chairman of Edcon. He has decided not to renew his employment contract, which ends in April next year. Edcon was not planning any restructuring that could lead to job losses, he said.
Independent retail analyst Syd Vianello said that if the group did not restructure its debt, there would be no business left to worry about. Vianello also warned that Edcon’s competitors would take advantage of its difficult situation.
He said Schreiber’s move suggested that his turnaround plans had not succeeded.
The debt crunch overshadowed news of Edcon’s operational performance this week. It reported that full-year sales grew 2% to R25.5-billion, with cash sales up 11% and credit sales down 8%. This seemed like a creditable performance, but sales had grown 5.1% the previous year.
While some have raised the prospect of Edcon relisting on the JSE, analysts do not see this happening soon, given its debt.
This week, The Foschini Group also missed its earnings estimates, even as it announced a 10% increase in full-year profit. Here, too, the growth in cash sales (up 19.6%) outstripped credit sales (up 4.3%), which are more profitable for companies.