Jobs saved as ScS is bought out in rescue

Jul 4 2008 by Karen Dent, The Journal

JOBS at ScS have been saved but shareholders will be wiped out with a rescue deal agreed to prevent the collapse of the 96-store North East furniture chain.

Investment group Sun European Partners is paying an undisclosed sum for the whole retail business of the struggling Sunderland company which has seen its business hit the skids in the consumer spending slump and its share price freefall.

The company, which has 1,300 staff including more than 200 in the region at its Sunderland headquarters, distribution centre and 10 North East stores, yesterday put itself into administration before being bought out by the US company.

Chief executive David Knight, who said he was staying with the business, said that with “the issues we had it’s the best result for staff, suppliers and customers”.

Mark Firmin, of administrators KPMG, said: “I am delighted that we have been able to complete a transaction that will enable the trading business to carry on as normal.”

However, shareholders will receive nothing from a deal that values the equity as worthless and comes after attempts to raise capital failed. Other traditional distressed debt investors had balked at the task of turning around the retailer’s trade.

Trading in ScS shares was suspended last week at 6.5p. The stock had fallen more than 90% this year and was trading at a fraction of its April 2006 high of 570 pence.

Shareholders are now unlikely to receive a dividend and the prospect of a dividend to unsecured creditors was also “uncertain”, said ScS.

Mr Firmin added: “Efforts by the board and its advisers to find a solvent solution for the holding company did not come to fruition and the sale of the shares of the trading company represents the next best solution; however, it is unlikely that there will be sufficient monies to enable any distribution to the shareholders.”

ScS’s problems came to a head last week when an insurer refused to cover five suppliers against the company being unable to pay them, putting its finances under severe pressure. It suspended its share trading and entered exclusive discussions with Sun European Partners.

ScS chairman Mike Browne said yesterday: “The ScS Business looks forward to benefiting from the extensive experience of Sun and its affiliates in the retail industry so that it can stabilise and grow its business.”

The company, which made a pre-tax profit of £7m last year but is expected to make a loss this year, was undermined by the credit crunch and the swift downward spiral in the housing market.

ScS is the latest in a series of small British retailers to go into administration as indebted shoppers cut back on spending amid higher food, fuel and borrowing costs. Other recent casualties include shoe seller Dolcis, clothing chain Ethel Austin and beds retailer Sleep Depot.

Ian Shepherdson, a Newcastle-based economist who has worked in the City and Wall Street, said the rescue deal would allow ScS to continue in the short term.

But he warned: “Effectively, they are gambling that the housing market, the furniture market and the credit market will improve. The danger is this is not a normal economic cycle.”