Jessops has struck a deal with HSBC which will save 2,000 jobs.
The Jessops camera chain has handed control of the business to its bank in a take-it-or-leave-it deal it said would save the business and 2,000 high street jobs.
The 72-year-old chain, the largest photographic retailer in the UK, has agreed to a debt-for-equity swap with HSBC. Shareholders, whose investment in Jessops was worth 155p a share just five years ago, will get just 1p for every 10 shares they own.
Photograph: David Sillitoe
Chairman David Adams, who was brought in two years ago to try and save the ailing business, said the deal, was “a good result”. The alternative, he said, was immediate insolvency and shutdown.
Jessops is one of a number of firms that have been forced to relinquish their equity to lenders to slash their debts and stay in business. Earlier this year retirement home specialist McCarthy & Stone and house builder Crest Nicholson were forced into such swaps. Fashion group Mosaic, which runs the Oasis chain, did a similar deal with its lender Kaupthing and hardware retailer Robert Dyas agreed a swap this month with Lloyds Banking Group and Allied Irish.
The Four Seasons nursing home business and betting group Gala Coral are also known to be considering a swap deal to cut their debts.
Adams said Jessops’ dire financial situation was not the result of the recession but of over-ambitious debt-fuelled growth plans which left the retailer owing HSBC some £60m. The retailer, he said, had pursued a “growth at any cost” business plan that was unrealistic.
Jessops is one of a number of companies held up as an example of the poor outcome of private equity ownership. The private equity arm of ABN Amro floated Jessops in October 2004 for 155p a share and sold its remaining stake in 2006 for 120p.
The following year the wheels came off: Jessops was hit by fierce competition for point-and-shoot compact cameras and increasing use of camera phones. Sales collapsed, the group issued multiple profit warnings and the directors were replaced. One hundred stores were closed, 500 jobs axed and old stock sold off at a loss.
Adams said the swap deal showed “we have demonstrated to the bank that Jessops has a valid place in the market and a valid business plan and that there is good chance of getting a return”.
Under the debt-for-equity swap Jessops will be sold to a new company 47% owned by HSBC and 33% by the retailer’s pension fund, which is in deficit. The remaining 20% stake will pass to an employee benefit trust that will eventually be allocated to the retailer’s management as a long-term incentive. Two key beneficiaries are likely to be Jessops’ new chief executive, Trevor Moore, who joined the business two weeks ago, and David Adams, who is staying on as chairman.
HSBC is providing a £54m loan to the new company to acquire Jessops and will immediately write off £34m – leaving the retailer with a debt of £20m. Shareholders will receive just £100,000. There are just over 100m shares in issue.
The UK Listing Authority, which monitors quoted companies, has granted a waiver to usual rules that would require a circular outlining the deal and a shareholder vote – to allow the refinancing to go ahead immediately. The retailer had said it did not have time to comply with the usual procedures.
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