Carpetright is in talks about a cut-price £15m sale to its biggest shareholder as the specialist retailer said it needed to raise £80m to stay afloat.
Meditor, a British hedge fund headed by former Old Mutual banker and poker player Talal Shakerchi, already owns 30% of Carpetright’s shares and bought up more than £40m of its debts in August.
The firm is offering investors just 5p a share, a big discount to the 9p that Carpetright’s shares were trading at on Wednesday, before the Meditor offer was announced.
Carpetright has endured a torrid few years during which it has closed more than 90 stores as part of a rescue restructure. The company has faced heavy competition from rival Tapi, established by the Harris family which founded Carpetright, amid a general slowdown in sales of home furnishings caused by consumer uncertainty and a lacklustre housing market.
Carpetright said it was “performing well despite the challenging economic backdrop and intense sector competition”. It said profits were improving as it reduced costs and increased efficiency.
The floor coverings specialist said it was considering the offer as it needed new funds to repay debts and fund a turnaround.
Carpetright has £56m of debts including a credit facility owned by Meditor and an overdraft facility, which are both due to expire on 31 December, as well as a £26m loan provided by Meditor due for repayment next July. The company said its debt levels would rise over the next few months.
Bob Ivell, chair of Carpetright, said: “Shareholders will be aware that we have been engaged in comprehensive refinancing discussions to replace existing facilities which expire at the end of this calendar year. The possible offer being announced today would put in place a new financing structure for Carpetright which would enable us to continue our recovery and make necessary investments in improving our business.”
The company said it was discussing the deal with Meditor after “actively exploring various long-term financing solutions” including refinancing, asset-backed lending, strategic asset sales and equity financing.
Meditor’s takeover plan would lead to the investment firm converting the majority of Carpetright’s outstanding debt into equity and providing additional capital to help the company expand.
One major shareholder – Aberforth Partners which owns 12.6% of Carpetright’s shares – has agreed to accept the offer. Other investors representing 11.4% of the group’s stock, including George Soros’s Soros Fund Management, have said they intend to back it.
Greg Lawless, a retail analyst at Shore Capital said shareholders should accept the possible offer. “Given that the largest institutional shareholders look to have already bought in to the proposed deal it may represent a bird in the hand for other shareholders and will bring to an end a troubled period for the company,” he said.
However, Carpetright said there could be no certainty that Meditor would make an offer or on the terms of the offer at this stage. Meditor has until 28 November to decide whether to make a firm offer or walk away.