Poundland plots rent cuts in battle for survival
Poundland bosses are hatching a plan to enforce steep rent cuts on store landlords as part of a last-ditch bid for survival.
The discount retailer has earmarked hundreds of stores for sharp rent reductions as its Polish parent company looks to persuade new owners to take the chain off its hands.
An auction of Poundland has been whittled down to a shoot-out between the distressed investment funds Gordon Brothers and Hilco.
The winning bidder will inherit a radical new turnaround plan drawn up by senior management, which proposes taking the axe to Poundland's sprawling estate of more than 800 stores.
Between 150 and 200 have been singled out for imminent closure with as many as 500 more selected for swingeing rent bill decreases as bosses seek to dramatically rein in costs. Poundland employs 16,000 people.
It is understood the company hopes to impose reductions on landlords of anywhere between 10pc and 50pc, while pulling out of scores of other sites via a court-sanctioned restructuring scheme.
However, there is no guarantee that a judge will approve the proposal. A source familiar with the situation said any future decisions on rents would be for a potential new owner.
Such extreme steps are usually attempted via an insolvency process known as a company voluntary arrangement in which landlords are handed a vote on any cost-cutting measures that will affect them.
Barry Williams, the retailer's former managing director, was parachuted back on to the board at the beginning of the year to help address Poundland's spiralling crisis.
Pepco crashed to a £548m loss in December after taking a £650m write-down on its UK operations. It blamed a 'significant decline in performance' as well as spiralling costs at Poundland for the setback.
Under new owners, closures are expected to be accompanied by a huge cash injection as they seeks to turn around Poundland's dwindling fortunes. Prospective backers anticipate having to immediately pump in between £70m and £100m to stabilise the company.
Those involved in the talks say Poundland's advisers at Teneo hoped to have entered exclusive talks with one of the remaining bidders this week.
However, the timetable appears to have slipped, prompting speculation about whether investor appetite had waned as result of the funds needed to turn the retailer around and concerns over the complexity involved.
There are also worries that trading at Poundland has continued to deteriorate, exacerbating its precarious situation.
Last month, Pepco told investors not to expect 'major proceeds' from any sale of Poundland. It also warned that the chain might not make a profit in the forthcoming financial year.
The business continued to face 'highly challenging trading conditions' in the six months to the end of March, it said. Like-for-like sales were down 7.3pc and pre-tax earnings slumped three quarters to €22m (£18.6m).
A Pepco Group spokesman said: 'The focus of the group and advisers is currently on a potential sale of Poundland. This is an ongoing process and no final decisions have been taken.'
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