Edcon gets nod for restructuring
Commission recommends tribunal approve New HoldCo’s takeover
The Competition Commission’s approval of clothing retailer Edcon’s restructuring clears a major hurdle in its R2.7bn refinancing. Edcon which operates the Edgars, Jet and CNA chains, struck a deal with its creditors in March, including its landlords and banks that resulted in them providing financing and becoming shareholders in the retailer.
The Competition Commission’s approval of clothing retailer Edcon’s restructuring has cleared a major hurdle in its R2.7bn refinancing.
Edcon which operates the Edgars, Jet and CNA chains, struck a deal with its creditors in March, including its landlords and banks, which resulted in them providing financing and becoming shareholders in the retailer. The proposed ownership change subsequently led to the creation of New HoldCo to house its new shareholders.
On Tuesday, the commission recommended that the Competition Tribunal, which adjudicates on competition matters, approve New HoldCo’s takeover of Edcon.
The commission found that the proposed transaction “was unlikely to result in a substantial prevention or lessening of competition in the relevant markets.”
It also noted that the transaction sought “to mitigate the dire financial position the Edcon Group finds itself in and avoids potential liquidation, which may result in job losses”.
REFINANCING
Edcon asked its creditors to refinance the group after it found itself unable to hold its own in an increasingly competitive market. The group was losing market share to local retailers like Mr Price and to global brands like H&M, Zara and Cotton On.
Without the deal with its creditors, there would have been a real danger that the retailer, which employs about 40,000 people, 14,000 of whom are full-time, would have gone under. The closure of Edcon would have had far reaching implications, as its chains account for about 10% retail space in SA, and source much of their clothing from local manufacturers. Given the implications of Edcon shutting its doors, the government has been very supportive of the deal.
This was noted by competition commissioner Tembinkosi Bonakele, who said the regulator believed the proposed transaction would have an overall positive effect on employment, particular on the retail industrial sector, because it was meant to preserve jobs within Edcon.
“The group intends to employ additional staff in the future.
“A significant number of Edcon employees could lose their employment were the business to be placed under business rescue proceedings if the acquisition is not approved,” Bonakele said.
The deal was the second time Edcon had to be saved by its creditors in three years. Back in 2016 its banks swapped R20bn in debt for equity.
LOCAL PRODUCERS
The commission said the conditions of the second deal were a result of the merging parties and the government agreeing that these conditions be similar to the one concluded in 2016. That deal also required its new owners to support local clothing producers and BEE.
The first deal saw Parentco, an entity made up of Franklin Templeton, Standard Bank, Barclays Africa Group, FirstRand, Standard Chartered, Investec and Harvard Pension Fund taking control of Edcon.