Mothercare to close 50 outlets and reinstate ousted CEO

Mothercare

Maternity retailer brings back Mark Newton-Jones, who was sacked in April, as part of rescue plan

Mothercare says it hoped to secure GBP113m in support.Photograph: RichardBakerWork/Alamy

Mothercare is to close 50 stores with the potential loss of at least 800 jobs and is rehiring its former chief executive - who was sacked only last month - under a rescue plan designed to secure the future of the struggling baby goods and maternity retailer. The group said Mark Newton-Jones, who was ousted in April, would now be returning to lead the business. His departure came after Mothercare admitted it was in financial difficulties as poor trading put it at risk of breaching the terms of its loans.

Mark Newton-Jones, ousted in April reinstated in May.

Photograph: Mothercare/PA

The group said it was on course to secure GBP113.5m in new funds to support the business. It plans to raise GBP28m from shareholders by issuing new shares in July and has secured new debt facilities of GBP67.5m from its banks. It is also borrowing GBP8m from shareholders and GBP10m from a "trade partner".

The retailer will also launch a company voluntary arrangement, a form of insolvency, under which it will ask landlords and other creditors to let it vacate 50 stores and cut its rent bills on 21 more. Creditors will vote on the CVA, which only relates to certain business entities within Mothercare, on 1 June. The stores are expected to close within a year.

Quick guide

What is a company voluntary arrangement?

Show Hide What is a company voluntary arrangement?

A company facing financial difficulties prompted by heavy debts can apply for a company voluntary arrangement in order to avoid administration or other more disruptive forms of insolvency.

It is a legally binding insolvency process in which a company cuts a deal with creditors on unsecured debts. In retail, this usually involves asking landlords of poorly performing shops to reduce rental payments or allow the company to exit leases on stores which they would otherwise be bound to for long periods. Companies hire an insolvency practitioner to assess the business and whether a CVA has a reasonable chance of success.

They then produce a CVA proposal which may involve changes to the terms of leases or termination of onerous supply or employment contracts. In order for a CVA to go ahead, the company must call a meeting of unsecured creditors, which may include suppliers and landlords. For the CVA to be approved, creditors who are owed at least 75% of the company's total unsecured debt must vote in favour.

At least 50% of creditors who voted for the CVA must not be connected to the company. Once approved, the company can continue trading as usual and all unsecured creditors are bound by the deal, even those who voted against it or didn't vote at all. Creditors are often willing to support a CVA in the hope of recovering more cash than they would if the company went into administration or liquidation.

They hope that reducing debts will help create a viable company that can continue to trade and pay them. The process is popular with managers because they usually remain in charge of the company and it is cheaper than other forms of insolvency.

Was this helpful? Thank you for your feedback.

At least a further nine stores will also be closed as Mothercare said it wanted to move to 78 sites by 2020, from 137 today. Further jobs could go as the company made clear it was aiming to save up to GBP15m a year in costs, partly by making changes at its head office.

Richard Hyman, an independent retail analyst, described the board's handling of Mothercare's difficulties as shambolic. "I've never seen anything like this," he said. "Who has been leading the decision-making to get rid of Mark Newton-Jones, to support the former chairman and his decision to appoint a successor and then a week later sacking the chairman? This is a publicly listed company and it's ridiculous.

What have the non-executive directors been doing? They all need replacing." Clive Whiley, the company's interim executive chairman who was brought in after former chair Alan Parker exited last month, said the re-appointment of Newton-Jones, who will work alongside the man hired as his replacement, David Wood who becomes managing director, would give Mothercare a "first-class executive team to ensure implementation of the transformational tasks ahead of us".

He said: "The business has not moved far or fast enough to keep up with the ever changing dynamics and shopping patterns of our customers. The continued decline of UK high street footfall and our inflexible and deep store cost base, alongside the ever growing importance of multichannel retailing, presented significant and worsening challenges to our business model. "?

These measures will allow Mothercare to return to a more stable footing, accelerate the transformation of the group and drive it towards a viable and sustainable future."

[embedded content] Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

The CVA will trigger a review of the Mothercare pension by the Pension Protection Fund. The PPF will be able to block the restructuring deal if the company's scheme is left at a disadvantage.
In a bid to secure PPF support, Mothercare said it planned to continue paying into the scheme and had set up a deed to ensure that pension scheme contributions were protected.

Mothercare's share price shot up 23% in morning trading on news of the rescue deal.

But industry watchers warned that Mothercare's future remained uncertain in a tough market, which has seen the collapse of Toys R Us and Maplin and major store closures by New Look and Carpetright.

Poundworld and House of Fraser are also planning to close stores using CVA deals in the coming weeks.

Leave a Reply

Your email address will not be published. Required fields are marked *