Woolworths, the famous high street department store in the UK, smarting under the weight of competition from new specialist stores, large supermarkets, internet retailers and a consumer downturn, is likely to sell its loss making 800-store retail chain to restructuring specialist Hilco, for as little as £1.
Woolworths' board is weighing all options to salvage the business and arrive at a viable alternative amidst competing claims of investors and creditors.
Woolworths, which also owns EUK, an entertainment wholesale company and 2Entertainment, the music and video publishing venture with the BBC is in debt of nearly £370 million and a half-year loss of almost £100 million in September.
Woolworth's board is likely to call in the administrators within days unless they can secure a rescue deal with lenders and has notified its banks to that effect. As it is, it does not want to break the law by trading even when it is bankrupt.
The Woolworths board is keen to sell off its 800 store retail chain in order to save nearly 30,000 employees from being jobless as also to protect shareholder's investment in its other two companies, 2entertain, and EUK, which are profitable.
While Woolworth is in talks with Hilco, a company that specialises in turning around struggling businesses, it also has the option of breaking up of the company and selling it in bits and pieces.
It is, however, expected that Hilco will buy Woolworths 800 store retail chain for as little as £1 and take on about £250 million worth of Woolworth's debt which will still leave Woolworth with its two remaining companies EUK and 2Entertainment whose annual profits are around £42 million and help to service its remaining £120 million debt.
But its retailer lenders, Bank of Ireland's subsidiary, Burdale Financial, and GMAC Commercial who have loaned Woolworth £385 million in January against its stock and other assets, have refused to agree to the deal.
Ardeshir Naghshineh, the Iranian born and Norway-based property developer, who is also the biggest shareholder of Woolworths, also opposes the deal and wants the Woolworth management to look at deals other than Hilco in order to get good value of the retail chain.
Woolworths believes that its lenders, Bank of Ireland and GMAC, want the retailer to go into administration, so they can recover their money faster and this has made the board furious. At least one board member alleged that the lenders are wanting to create an event and they want to look at their balance sheet instead of lending to a viable UK business who has blue chip clients.
Naghshineh, is also believed to have suggested the Woolworths board to spin off its two profitable companies, 2Entertainment and EUK, and use the money for restructuring its 840-store high street retail chain.
But, any deal will have to be approved by its shareholders, the company's lending banks and also its pension trustees.
In August, founder of Iceland supermarket chain, Malcolm Walker had offered £50 million for Woolworth's 800 retail stores, which was turned down by the board.
Woolworths board will have to decide fast as the retailer is most likely to run out of cash before the high spending Christmas season and suppliers may not extend credit due to it.
He also said, Woolworth's board if it decides to put the company into administration, then the timing of it will be important, whether to to do it before Christmas or after, because if it is done after Christmas, the company will lose out on money from Christmas sale and if it does it before, then it lets the new owner take all the cash.
Even the group's profitable company, EUK has come under pressure with some of its suppliers changing the credit terms and a few asking to pay cash upfront for some products as credit insurers stopped covering companies that deal with EUK.
It is reported that EUK is asking some of its customers to pay earlier than the normal agreed terms and is also thinking of different suppliers in case some of its long standing suppliers do not deliver during the Christmas season.
As recession sets in the UK, consumer confidence has fallen to an all time low, and according to a estimate by accountancy firm BDO Stoy Hayward, nearly 1,400 retail companies will end up shutting down by the end of this year alone with around 30 high street chains have gone bust this year so far, including MFI, Dolcis and Rosebys.
Woolworth store was first set up in the UK at Liverpool by a US farmer's son, Frank Woolworth in 1909 and at that time it is believed he had said ''I believe that a good penny and sixpence store, run by a live Yankee, would be a sensation here.''
He was right, because by 1920 Woolworth had expanded to 336 stores in the UK and became popular with kids below the age of 11 as it focused on entertainment, confectionery and children's toys and clothing.
In India, the RPG group's retail arm, Spencers, has a tie up with Chad Valley, owned by Woolworths and Tata Group's consumer electronics chain Croma also has a partnership with Woolworth.