Wednesday, 11 February 2009

Baugur's fall from fashion....

As Baugur handed over the keys of its UK headquarters to its administrators, PricewaterhouseCooper this week, Fashionista found it hard to believe that only last year the company was awarded the President of Iceland's award for Export Achievement in recognition of its outstanding contribution to promoting and stimulating Icelandic exports. Contrast this with the recent accusations by Baugur boss Jon Asgeir Johannesson that it is senior political figures who have triggered the demise of the company by pursuing a vendetta against him.

No-one can deny the impact of Baugur on the retail sector, and the UK high street in particular. Companies related to Baugur employ some 50,000 people worldwide in over 3,500 stores with a total turnover of £5.4 billion and its investments include some of the most well known brands in the UK, including Hamleys, Whistles, Jane Norman, Mosaic Fashions and House of Fraser.

Baugur has been hard hit by the banking collapse. It is estimated that Baugur owes the now nationalised Icelandic banks (Landsbanki, Kaupthing and Glitnir) more than £1 billion and under the direction of the new Icelandic government, these banks are now seeking to recover these assets. Baugur and its biggest creditor, Landsbanki, had been holding discussions regarding a potential restructuring of the group until the bank withdrew its support and forced the parent company, BG Holdings, into administration. The bank has now seized control of the company's shares in Iceland supermarkets (14%), House of Fraser (35%), Aurum group of jewellers (including Mappin & Webb and Goldsmiths) (38%) and Hamleys toy store (64%) and Baugur is prevented from selling any assets without the bank's consent.

Baugur has successfully petitioned in Iceland to enter into a moratorium which will allow Baugur a period of review with temporary suspension of payments. This will apply until 4 March and, according to the company's website, will enable the company to facilitate a financial and operational restructuring in co-operation with its creditors in order to protect the interests of shareholders and value of the company's assets.

Even if the retail businesses within Baugur's stable continue to thrive (All Saints for example, had 43% like for like sales for the year to January 2009 and opened new stores in Paris and Antwerp), it is unlikely that the sale of Baugur's investments will realise their full value. Indeed Fashionista has read that banking sources suggest such sales would only raise 10p in the pound for creditors. Landsbanki has, according to Retail Week, recently claimed that it does not intend to immediately sell the shares it now controls, with the focus instead on maximising the long‑term value of the shareholdings.

With Mosaic also in talks with its lenders to secure its future and Shoe Studio and Principles up for sale, Fashionista finds it difficult to predict where some of Baugur's well known brands will end up or how the face of the British high street might change along the way.