Still more questions than answers over the future of BHS

A month ago Philip Green flogged his department store chain to a mysterious consortium. Joanna Bourke outlines what we do – and don’t – know

It is just over four weeks since BHS, one of Britain’s most recognised high street retailers, was sold for £1 by Sir Philip Green’s Arcadia group. The 87-year-old chain, with around 171 stores and more than 11,000 staff, was not snapped up by a private equity giant or a rival British retailer. Instead, an unheard-of group called Retail Acquisitions was announced as the buyer.

Coming at a time when many retail groups are reducing their store numbers and more shoppers are heading online, the purchase raised eyebrows. Many had expected the group would be broken up before being sold off.

Though the business was sold debt-free it came with problems. BHS has a pension deficit believed to be around £130m and it made a pre-tax loss of £69.6m last year.

The new owner is backed by a number of investors including brokers and lawyers, and its largest shareholder – Dominic Chappell – has a chequered CV that includes controversy and bankruptcy (see panel). When contacted by The Independent for a progress report a month after the purchase, Retail Acquisitions initially declined to comment, before issuing a last minute statement as The Independent was going to press.

Here we look at what we know so far – as well as what we do not know – about how the plans to revive the chain and keep people in employment are progressing.

Target

When the acquisition was announced Keith Smith, who was made the chairman of Retail Acquisitions and is a former director of the corporate finance firm Nabarro Wells, said: “We are convinced that with strategic and focused support, we will return BHS to profitability and safeguard the workforce.”

His words were echoed by Sir Philip: “The business is handed over in a sound financial position with significant cash balances and banking facilities in place. I am confident Retail Acquisitions have a platform to grow the business and return it to profitability.”

It is a bold target but Retail Acquisitions is likely to look at pensions and property on the balance sheet as a way of achieving it.

Property

Just a day after the purchase, the property agent Jackson Criss was appointed to explore options for a handful of buildings in the group’s portfolio. That only heightened speculation about the long-term future of the department store group. Just days later, it emerged that the project had expanded significantly, with more agents hired to look at a total of 51 shops.

The Independent can now reveal that all prospective parties looking at any property deals with the group have been asked to sign a non-disclosure agreement (NDA), meaning that, legally, they cannot discuss what they have seen and what they want to do.

One London retail property agent said that ever since the public had been made aware of the appointment of real estate specialists any party looking at any of the properties had been asked to sign an NDA.

A spokesperson for Retail Acquisitions said there were concerns about how the media had covered the property agent appointments. He explained: “It is normal business practice to require agents to sign NDAs, particularly when leaks of confidential information have led to inaccurate media reporting.”

Any disposals or exits from expensive leases will help the group trim its overheads, but some property industry experts believe estimates that the real estate portfolio could be valued as high as £200m are far off the mark.

The London-based agent branded some of the properties unattractive and said there were only around 10 that he believed would create real excitement among buyers.

Pension deficit

One of the biggest challenges facing the new owners is the BHS staff pension deficit, which is estimated to stand at around £130m. The company has reportedly agreed a deal with Sir Philip under which both parties will top up the pension fund with annual payments in each of the next three years. A meeting between pension trustees and the Pensions Regulator to discuss plans for the deficit has taken place but the outcome has not been made public. John Ralfe, an independent pension expert, warned it will take some time to deal with the pension issue. “The latest actuarial valuation, to fix deficit contributions payable by the company, won’t be finalised for several months. Meanwhile, part of any cash raised from store disposals should be put into the pension to reduce the deficit,” he said. Mr Ralfe added that if the company folded the pension scheme members would go into the state Pension Protection Fund and receive only partial compensation.

“The pension deficit, which was inherited, is undeniably a challenge but one that is also being reviewed and addressed in a calm and professional fashion,” a spokesperson for BHS said last night.

Leadership

The group also confirmed last night that it has appointed Darren Topp, BHS’s chief operating officer, as its new chief executive on a permanent basis. He replaces BHS’s former managing director, Richard Price, who is leaving to join Tesco. A chairman and finance director are still being sought.

A BHS spokesperson said: “There is no plan for any large scale redundancies. All aspects of the business have been, and will continue to be, reviewed in the normal way and the decision making will always be with the best interests of the business (to include, of course, its employees, who are very much valued and very important) firmly in mind”

The spokesperson went on: “It is very much business as usual and BHS expects to be able to announce some positive developments in the near future.”

* Last night, as The Independent print edition was going to press, a spokesperson for BHS emailed through this statement:

“The new owners have come in with the clear and stated intention to support the existing management of BHS led by the very experienced Darren Tropp, who we are pleased to announce is now the permanent CEO. Darren and his team are continuing with the turn around plan that had already begun before the acquisition and are in regular contact with employees, as you would expect, and indeed as they were prior to the acquisition.

"Accordingly staff are being updated in a timely and proper manner as to any relevant developments and that will continue to be the case. There is no plan for any large scale redundancies. All aspects of the business have been, and will continue to be, reviewed in the normal way and the decision making will always be with the best interests of the business (to include of course its employees, who are very much valued and very important) firmly in mind.

"In the light of the above it is very much business as usual and BHS expects to be able to announce some positive developments in the near future. The pension deficit, which was inherited, is undeniably a challenge but one that is also being reviewed and addressed in a calm and professional fashion.”

Retail acquisitions: Who are they?

The company directors of the new business are former Formula 3000 racing driver and entrepreneur Dominic Chappell, former director of City finance house Nabarro Wells Keith Smith, lawyer Edward Parladorio, and Lennart Henningson, a former senior adviser for HSN Nord Bank. Few retailers will be familiar with any of the names, but a look into Mr Chappell’s past may also raise eyebrows.

He has been made personally insolvent three times – twice through bankruptcy and once through an individual voluntary arrangement. His Island Harbour Holdings marina development on the Isle of Wight went into administration in 2009.

Recent reports in the Financial Times have also claimed Retail Acquisitions was tipped off about the possibility of buying BHS by Paul Alexander Sutton, a businessman who has been also been declared bankrupt twice – the first has been discharged and the second is being appealed. Retail Acquisitions deny that Mr Sutton had any involvement in the purchase.

Mr Chappell told the Sunday Times last month that he has “always acted correctly in the eyes of the law”. At the time of announcing Darren Topp as BHS interim chief executive, Mr Chappell said: “We look forward to working with them... to return BHS to profitability.”