The business secretary has written to the owner of Poundland amid fears that the cut-price retailer could collapse into administration, threatening to overshadow John Healey’s budget.
Sources said that Gordon Brothers, the US investment firm that bought the 600-store Poundland chain for £1 last summer, looks set to appoint administrators to the struggling retailer.
Jonathan Reynolds has written to Gordon Brothers to establish the latest situation at the company, which employs 12,000 staff.
The company rejected the only bid to take on the group – which includes the 50-store Dealz chain in Ireland – as a solvent company in its entirety, from Northern Ireland’s Martin Property Group, earlier this week.
It is understood Gordon Brothers is poised to file a notice of intention to appoint advisory firm AlixPartners as administrator, potentially as early as Wednesday. Three independent directors appointed to help oversee a sale have quit amid disquiet over the move towards insolvency.
The timing of the move threatened to overshadow Healey’s first budget as chancellor, amid longstanding complaints from companies over costs imposed by the government on businesses.
Barry Williams, the boss of Poundland, wrote to workers saying the rejection of the bid from Martin Property Group was “unexpected, unwanted and wholly avoidable”.
An improved bid from the Northern Irish firm has not been ruled out.
However, sources said that Martin’s bid fell well short of Gordon Brothers’ hopes to recoup the £30m in debts it took on with Poundland. The bid is understood to be worth more than £15m, with only a portion upfront.
One industry source said that suppliers to Poundland were already beginning to hold back on deliveries, making it tougher for the group to secure a rescue bid.
Industry insiders said Gordon Brothers wanted to move quickly as Poundland was currently flush with stock ahead of the busy Christmas period. A quick break-up of the chain, with parcels of stores and stock sold off, would lead to a maximum return for the restructuring specialist, sources said.
“Gordon Brothers has a simple choice. It can accept an offer from Martin Group, worth at least half of the £30m which it secured for £1, or get significantly more than that by busting the business,” the source said.
“The only thing that can change this is if they feel the moral or public relations duty.”
Reynolds has instructed his chief strategic business adviser, David Bickerton, to “establish the facts” regarding Poundland’s potential collapse, as first reported by the Financial Times. He is understood to have contacted Gordon Brothers but not Poundland’s management team, which had backed the Martin Property Group bid.
A business department spokesperson said: “We know this will be a concerning time for Poundland employees, their families and communities across the UK.
“This is a commercial process and ultimately a decision for Poundland’s owners, so it would not be appropriate for the government to comment further.”
Gordon Brothers is understood to believe that it can raise more cash – as much as £30m – and keep more jobs in place long-term by breaking up Poundland and selling off the stock and stores to a variety of retailers.
There could be as many as eight interested parties, including US investment firm Fortress, which owns Poundstretcher, and the owner of The Range. B&M is thought to be interested in taking on at least some outlets.
However, one industry insider said: “Who is going to take on 600 high street stores?” He predicted that up to 500 could be left without a buyer in the event of a break-up, leading to significant job losses.
Gordon Brothers has been approached for comment.
