The management wisdom of selling up for £1
As retail supremo Philip Green ditches BHS, we analyse the business strategy behind divesting a firm for a nominal fee
Sir Philip Green’s decision to end his 15-year ownership of high street chain BHS for the reportedly nominal fee of £1 reveals the pressures that struggling companies can put on even the most experienced and successful business leaders. While no official details about the deal have been released, Green is believed to have sold the loss-making chain – with 171 stores and 11,000 staff – for drastically less than the £200 million he paid in 2000.
The consortium of investors now controlling BHS includes stockbroker Keith Smith – formerly of City firm Nabarro Wells – entrepreneur and former racing driver Dominic Chappell, and Spanish oil-distribution firm Olivia Petroleum.
Selling off a company for a nominal fee often reflects the owner’s desire to cut losses and move on, and that seems to have been Green’s motivation. The Arcadia boss has seen annual losses at BHS widen to £21m in 2013 to 2014 – up from £19.3m the previous year. Having purchased the company at the turn of the millennium with the view to reviving its fortunes, the sale marks a belated admission that the company has simply become too unwieldy.
A sale has been on the cards since the departures of BHS managing director Richard Price and communications director Tania Foster-Brown to rival companies. Already, rumours are circulating that new owner Smith is looking to hire former Thomas Cook boss – and vastly experienced retail chief – Harriet Green as BHS chairman to steer the firm into profitability.
While the vendor loses out on a large selling fee in this type of transaction, nominal fees allow for a quicker sale of the firm in question and provide opportunities for new owners to pump life into the brand as a going concern, unencumbered with debt. A minor asking price also opens the sale up to a larger pool of buyers, who may otherwise be scared off by a substantial figure, and that ease of entry to negotiations is more likely to attract prospective owners with fresh angles and management styles.
One prime example is Chelsea Football Club, which former chairman Ken Bates bought for £1 in 1982. With clever investment in the club’s ground and facilities – as well as signing a number of talented players – he established the club as one of the biggest names in top-tier English football. Most famously, Bates more than recouped on his investments in 2003 by selling the club to Russian billionaire Roman Abramovich for £140m.
Italian football club Parma are currently hopeful of a similar turnaround in its fortunes. Faced with around £145m in debt, not to mention disgruntled players and staff who have not been paid for months, Parma’s owners Tommaso Ghirardi and Rezart Taci have reportedly sold the club for 70p to the Mapi Group. Giampietro Manenti has been installed as its new president.
In another business sector, private equity firm Better Capital recently sold the Reader’s Digest for just £1, as the publication continued to struggle with dwindling print sales. Sold to venture capitalist Mike Luckwell – whose former TV company HIT Entertainments created Bob the Builder – the Digest had to be divested in the view of Better Capital boss Jon Moulton, because “from the viewpoint of the fund, the business didn’t justify the time and effort for us”.
Moulton paid £14m to buy Reader’s Digest in 2010, before investing a further £9m. But the company collapsed into a company voluntary arrangement last January. Although Moulton will be relieved to have exited that troubling situation, new boss Luckwell views the firm as a perfect opportunity to expand the Reader’s Digest brand into financial services, and attracting readers in the over-50 demographic – which represents a third of the population.