Shareholders lose as Smiths City chain sold for $60M

Shareholders lose as Smiths City chain sold for $60M

Liabilities assumed mean nothing is likely to be left for NZX shareholders.

Credit: Smiths City

NZX-listed retailer Smiths City has negotiated a conditional agreement to sell the Smiths City businesses for around $60 million.

The sale involves the acquisition of all of Smiths City Finance and the great majority of Smiths City’s stores. 

The purchaser is Polar Capital, a business owned by Colin Neal, founder of the refrigerated logistics company Big Chill. 

In addition to acquiring the stores, Polar Capital has also committed to taking over liabilities including commitments Smiths City has made to customers that have paid deposits for, or are awaiting delivery of, goods.

While the sale gives the Smiths City business a strong foundation on which to build, directors believe Smiths City’s ordinary shares, which were trading 30 cents a year ago, will retain no value following the sale.

While the transaction values the assets to be transferred to Polar Capital at around $60 million, because the purchaser is assuming debt and other liabilities, the net amount expected to be received is just $8 million.

Around seven of the company’s 29 stores will not be acquired under the transaction and will close.

Smiths City sells mainly whiteware and furniture but is also a HP retail partner and offers other tech brands including Apple, Samsung, Epson and Canon.

The final number of stores to be sold is dependent on the lease transfers and new lease terms being agreed for those transferring stores.

The agreement also envisages offers of employment being made to approximately 75 per cent of Smiths City’s 465 staff.

The agreement is conditional on, among other things, Polar Capital securing finance and directors anticipate the agreement settling on 22 May 2020.

“As we signalled at the end of March and earlier this month, the Covid-19 pandemic has delivered a material and significant shock to the business," said Smiths City chair Alastair Kerr said. 

"This shock has substantially shortened the time available for the turnaround programme that was the cornerstone of the company’s strategic plan. 

"Faced with this shorter timeframe, it became clear that Smiths City needed to bring new capital into the business to drive the turnaround."

The Board has explored numerous options to secure an injection of new capital, he added. These efforts included discussions with existing largest shareholders, and other potential strategic investors, to underwrite a broader capital raising.

“However, it has now become clear that the transaction we have announced today offers the greatest opportunity for Smiths City to endure for the long term. 

"It also offers the greatest opportunity to protect the jobs of as many of our staff as we can in this uncertain time. We are hopeful that under new ownership Smiths City will prosper.”

Polar Capital’s Colin Neal said Smiths City has been part of the New Zealand retail landscape for more than 100 years. 

"It is a trusted brand that has been synonymous with providing great quality, excellent value and attentive no-nonsense service.

“If a customer has paid Smiths City for a product, they will get the product. I am looking forward to working with the Smiths City team to build on this proud legacy. 

"I am also grateful for the resilience and continuing loyalty they and the broader community of partners, have shown as we worked through this period of uncertainty.”

Smiths City announced it was entering negotiations with potential investors in March.

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