Staples Offloads U.K. Business For ‘Nominal’ Amount To Focus on CoreNovember 18, 2016
Staples Inc. sold its U.K. business for “nominal proceeds,” a move that experts say may be followed by other embattled retailers that want to shed unprofitable businesses to focus on their core lines.
The deal, announced on Thursday with Northbrook, Ill., Hilco Capital Ltd., a restructuring and turnaround investor, allows Staples to get rid of underperforming assets without having to search for a strategic buyer that might never materialize or deal with the distraction and expense of winding it down, experts say.
Staples’ U.K. business generated $302 million in sales over the last fiscal year but just $177 million during the first nine months of the current year, and consisting of more than 100 locations. The operating loss narrowed to $6 million from $17 million last year.
Hilco said in a press release that it plans to phase out the Staples name, and run it under new management. A Hilco spokesman didn’t immediately return a phone call.
“What Hilco is going to do is operate the business for a period of time,” while it looks for a buyer, or someone to sublease the stores, or ultimately pursues a liquidation, said Holly Etlin, a managing director at business consultant AlixPartners LLP with its turnaround and restructuring team.
Ms. Etlin has served as an interim finance chief and consultant to troubled companies, as they have either failed or reversed their fortunes.
Cutting bait on struggling divisions may be the best course of action from a financial standpoint, even if, like Staples, the parent receives little or no money for the assets. “The cost for workout consultants is so excessive,” said Burt Flickinger III, managing director of Strategic Resources Corp., a retail-advisory firm.
Staples’ move also frees management to focus on the company’s remaining businesses. “They don’t have the distractions,” Mr. Flickinger said.
More companies are turning to distressed-asset investors like Hilco and Gordon Brothers to wash their hands of an unprofitable situation, she said. Such firms have expertise in turnarounds and liquidations.
“The issue is that you have to have somebody who is going to do that,” Ms. Etlin said.
Rival Office Depot Inc. also made a similar decision to sell its European operations for next to nothing, said Joseph Feldman, an analyst at Telsey Advisory Group. The company agreed to sell that business, which has about 2 billion euros in annual sales, to Aurelius Group, an asset manager, also for “nominal proceeds.”
Staples recently tried to buy Office Depot, but the deal was prohibited by regulators.
Staples is not entirely in the clear. The company had to make certain, unspecified guarantees regarding the leases of the stores they are selling, and “cannot reasonably estimate the amount of the liability, which could be material,” Staples said in a regulatory filing.
In its Thursday press releases and earnings conference call, the company said it is now focused chiefly on its North American business and continues to explore options for the rest of its European operations. A Staples spokesman said the company had no further comment.