What do you do with a problem like Woolworth?
Woolworth has emerged as the latest pension fund with a business attached but giving away the operating assets is no way out of the problem.
The retailer has received a cheeky offer from former employee Malcolm Walker, head of the Iceland frozen foods chain, for its chain of more than 800 stores but he does not want Woolies’ debt of at least £124m or its pension fund deficit of an estimated £100m.
Not surprisingly, Woolworth didn’t even think it worth telling investors it had received the offer; it just told Walker it was rejected.
Woolworth was valued by the stockmarket at £100m before Walker’s interest provoked a small rise. That is about the same as the pensions net liability and more than double Walker’s offer.
Put another way, Walker is offering well under £50,000 per shop for no liabilities other than Woolies’ disastrous trading record.
For as long as anyone can remember Woolworth has been a business-school case study but although everyone has analysed the problem, no-one has discovered the answer. The question ultimately reduces to “What is Woolies for?” and, the past executive having been defeated by the solution, Steve Johnson has been recruited from the Focus DIY chain to have a go next.
The retail division has sales of £1.7bn (about £40,000 per store a week) but they are falling and the latest profits were just £3.4m. It has sought a niche in everything from paint to records to confectionery and its own Ladybird childrenswear. Without success. Perhaps in a recession the answer is to go further down market, but that requires very keen buying.
Three years ago Woolworth directors rejected a private-equity bid of 58p a share: now it trades below 10p, even with Walker’s boost. But as his is not a bid for the whole company it will not be put to shareholders.
If Woolies did quit shops it would retain a profitable DVD publishing and wholesale division – plus the debt and pensions deficit. If the estate is to be sold it must be sold at a price high enough to reduce those liabilities or, better still, take them with it.
It is every manager’s nightmare that he wakes up and finds himself running Woolworth. Perhaps Johnson hasn’t yet woken up to what he is about to take on, but he starts with the advantage that even if he doesn’t know what to do with Woolies, he must know that Walker’s answer is the wrong one for anyone except Walker.
