Bonmarche makes U-turn on Philip Day bid after 'poor' Q1 trading
By Michele Maatouk
Date: Wednesday 26 Jun 2019
(Sharecast News) - Bonmarche shares tanked on Wednesday after the womenswear retailer made a U-turn on its previous rejection of a bid from Philip Day's Spectre Holdings, following "poor" first-quarter trading.
The company, which last month rejected a £5.7m takeover bid from Day - the owner of the Edinburgh Woollen Mill - said the offer was now looking "more attractive" after a tough first quarter, amid weakness in the underlying clothing market and a lack of seasonal weather to counteract it.
"In previous years, there would have been an expectation that at some stage during the selling season, better weather would generate a sales peak to offset the dip experienced during the first quarter but, in our experience, the current clothing market is not following the patterns of previous years," it said.
"It is early in the financial year, and the achievement of a profit before tax result which is in line with the board's expectations is possible, but there is a significant degree of uncertainty attached to this, and risks are more heavily weighted towards the downside."
While it remains of the view that Day's offer does not adequately reflect the potential longer-term value of the business, Bonmarche said the "increase in uncertainty" that has developed during the first quarter of the financial year "makes the certainty represented by the offer potentially more attractive in the short term".
As a result, the board now deems the offer to be "fair and reasonable" and recommends that shareholders accept it.
The retailer also said that its auditor, PwC, has informed the company that without a clear indication of trading having improved by the end on July, it may have to include a line in the audit report to show it was concerned about it being able to operate as a going concern.
"The board believes that once the near term has been weathered, the medium and long term prospects for the Bonmarche business are good. The board continues to welcome the opportunity to engage with Mr Day, who has, as yet, not taken up the offer to discuss future plans for the business, and believes that, with his sector experience, he would be a successful long term owner."
At 1250 BST, the shares were down 26% at 11.41p.
Russ Mould, investment director at AJ Bell, said: "Talk about an embarrassing situation. Trading is so bad at clothing retailer Bonmarche that its directors have gone with their tails between their legs and changed their mind on a previously-rejected takeover offer.
"They are still grumbling that the offer is too low as it doesn't reflect the potential longer term value of the business. Yet the directors say they have no choice but to cave in and recommend the bid from Philip Day's Spectre vehicle due to financial pressures on the business.
"Spectre believes it can help save Bonmarche by cutting its cost base and potentially improving its supply chain, marketing, supplier terms and more. Its plan isn't merely about short-term support to squeeze the final drops out of Bonmarche and the company ultimately dying another day; it's about securing the long-term future of the business.
"Shareholders will be hugely disappointed by the retailer having to be bailed out at a cheap price, but it is perhaps better to get something back than nothing at all which is the alternative if Bonmarche can't be saved."
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