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Nov 26, 2008
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SCENARIOS - What's in store for Woolworths

By
Reuters
Published
Nov 26, 2008

LONDON (Reuters) - Trading in shares of Woolworths Group, the struggling retailer, were suspended on Wednesday, 26th November while talks continued to save the business from collapse.



The 99-year-old group remains in discussions regarding the potential sale of its 815-store retail business to restructuring specialist Hilco UK for a nominal sum.

It is also in talks with the BBC regarding the possible 100 million pounds-plus sale of its 40 percent interest in the 2 Entertain DVD publishing joint venture with BBC Worldwide, the state-funded broadcaster's commercial arm. Here are some scenarios of what could happen next.

HILCO BUYS WOOLWORTHS' RETAIL BUSINESS

Woolworths' board agrees to both sell the retail business to Hilco for 1 pound -- with Hilco taking on about 300 million pounds of the group's 385 million pounds debt -- and to sell 2 Entertain to BBC Worldwide.

The lending banks, Bank of Ireland division Burdale and GMAC, support the ongoing rump business, which will consist of just a profitable entertainment wholesale distribution business.

Hilco would then have to decide when to place the retail business into administration to offload unprofitable stores.

It could trade the business for cash in the run-up to Christmas, then tout the most profitable stores to other retailers, such as supermarkets looking to expand their convenience store footprint and Philip Green's expanding fashion empire.

Alternatively, it may take a view that the business' cash position is so poor that immediate administration is required.

HILCO DEAL FAILS AND GROUP PLACED IN ADMINISTRATION

If the lenders decide not to approve the disposals, their adviser Deloitte will likely place the whole Woolworths group in administration, threatening the jobs of 30,000 employees.

Deloitte would likely close unprofitable stores and lay off staff, but keep trading the profitable ones as it looks for buyers of Woolworths' assets.

ARDESHIR NAGHSHINEH'S THIRD WAY

Ardeshir Naghshineh, Woolworths largest shareholder with a 10.2 percent stake, has outlined an alternative plan to lenders which would see the group realising some of its assets through the sale of leases to bring in cash and get it through the crucial Christmas trading period.

Seen by analysts as a long shot given Woolworths' claims to have explored all operational options to exit the crisis.

LITTLE RETURN FOR SHAREHOLDERS

Assuming Woolworths sells its retail business and 2 Entertain, the rump entertainment wholesale distribution business could in theory resume the Woolworths listing on the stock market.

This would not be the end of the crisis as the entertainment wholesale distribution business is not completely independent from the rest of the business.

With its major customer being the Woolworths retail business, the closure of stores will impact its ability to service the residual debt of about 85 million pounds it takes on.

PENSIONS SAFE

Woolworths' employees may lose their jobs but they won't lose their entitlement to pensions.

The pension fund is entitled to the first 50 million pounds of any 2 Entertain disposal under an agreement struck between the trustees and the Woolworths board last January.

As of August 2, the pension fund had a deficit of 58.2 million pounds.

(Editing by Andrew Macdonald)

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