Edcon taken over by creditors in $1.5bn debt-to-equity swop
EDCON, South Africa’s ailing clothing retailer, has been taken over by its creditors following a $1.5billion (R21bn) debt-to-equity swop that has seen the struggling company shed a significant chunk of its debt.
This equity swop means that Edcon’s owners since 2007, private equity giant Bain Capital, will exit the business after paying R25bn for the acquisition of the company, which has lost market share to its competitors Truworths, Mr Price and Foschini.
The deal has improved Edcon’s liquidity and cut debt levels to R6bn from R27bn over the past six years and the company had paid R4.2bn in interest repayments last year.
New owners include the US Franklin Templeton and Harvard Pension Fund, and Barclays Africa Group. The bond holders had committed to fund an additional R2.8bn to shore up the group’s liquidity.
Edcon’s chief executive, Bernie Brookes, said yesterday that the company had been “living beyond its means”.
He said the company faced a bleak future and had two options – either to go into business rescue or be taken over by bondholders.
Defaulted
The company had deliberately defaulted on its debt repayment in March in order to open way for negotiating the transaction, he noted.
“We have realised that our entire strategy was wrong. Management made poor decisions including the focus on international brands, and not focusing on customers.
“We also did not invest in information technology,” said the chief executive.
Edcon will exit a substantial number of international brands and upgrade its IT system and improve its supply chain.
Management made poor decisions, including the focus on international brands.
“Nobody wanted to work for us or work with us. Suppliers did not want to supply us with stock. They refused to give us new lines because we were a credit risk… We were lousy payers and we did not pay people on time,” Brookes said.
Edcon, which operates Edgars, Boardmans and CNA, planned to list on the JSE in the next four years, he said.
Brookes announced plans to sell the Legit brand to Retail-ality for R637 million, but he said there were no plans to sell struggling business units CNA and Boardmans.
Under attack
“We view Legit as a business that requires a lot more management time. We want to fix Jet and Edgars.
“Legit has been under attack from the arrival of competitors like H&M and Zara and it will be better under new management,” said Brookes. Legit generated R1bn in sales.
“The sale was not done to pay bills. Money for the sale will go into improving IT, and lifts,” said Brookes.
About 35percent of the company’s staff complement had been reduced, and there were no further plans to cut jobs.