Poundland sale: Gordon Brothers perhaps in pole position, rent cuts may be likely

The battle to keep Poundland going is being fought on two fronts and a preferred bidder for the struggling group could emerge this week.

First, the discount retailer’s parent company Pepco Group is understood to want to sweeten a takeover bid by Gordon Brothers to the tune of tens of millions of pounds, to help finance Poundland’s ongoing operations, according to Sky News. A deal could be finalised this week, the report claimed

Meanwhile, Poundland bosses are planning to force through steep rent cuts on store landlords as part of a agent bid for survival, according to The Telegraph newspaper.

They’ve earmarked “hundreds of stores” for big rent cuts as Pepco looks to persuade new owners to take the chain off its hands.

Poundland  hopes to impose reductions on landlords of anywhere between 10% and 50%, while pulling out of scores of other sites via a court-sanctioned restructuring scheme.

However, there’s no guarantee  a judge will approve the proposal. A source familiar with the situation said any future decisions on rents would be for a potential new owner to make.

The paper also said a potential auction for Poundland has been cut to two companies, investment funds Gordon Brothers and Hilco that specialise in distressed businesses.

However, Sky sources close to the process insisted that a direct deal with Gordon Brothers had yet to be formally agreed and that it was not yet certain to take place, with other outcomes still possible.

The Sunday Times had previously tipped Gordon Brothers as a frontrunner to buy Poundland.

If a transaction between Pepco and Gordon Brothers is struck, it will pave the way for substantial job losses triggered by the likely closure of well over 100 Poundland stores across the country. That figure could even reach 150-200 stores putting thousands of jobs at risk as part of a formal restructuring plan following a takeover.

Poundland employs around 16,000 people across an estate of over 800 stores in the UK and Ireland.

Under new owners, closures are expected to be accompanied by a huge cash injection as they seeks to turn around Poundland’s dwindling fortunes. Prospective backers anticipate having to immediately pump in between £70million and £100 million to stabilise the company.

Pepco had already outlined the dire situation at Poundland last month saying that underlying earnings could be wiped out in the current financial year.

Pepco crashed to a £548 million loss in December after taking a £650 million write-down on its UK operations. It blamed a “significant decline in performance” as well as rocketing costs at Poundland for the setback.

In a statement, a Pepco spokesperson said: “The focus of the group and advisers is currently on a potential sale of Poundland. This is an ongoing process, and no final decisions have been taken.”

Neither Gordon Brothers nor Teneo, which is handling the sale process, have commented.