Saturday, 15 May 2021

Make or break time for Bendon as shareholders prepare to vote on management buy-out

Shareholders for the owner of Auckland-based lingerie chain Bendon will this week vote on a management buy-out.

Bendon’s Nasdaq-listed owner Naked Brand Group (Naked) announced plans earlier this year to restructure and dispose of its unprofitable bricks-and-mortar operations and focus exclusively on its e-commerce business.

It is expected Naked’s sale of the New Zealand subsidiary, and the entities controlled by it (Bendon Group), will be made to a group of existing management. An AGM will be held on April 23 in Sydney for shareholders to vote on the deal.

Naked’s independent directors, Simon Tripp, Andrew Shape and Kelvin Fitzalan, had formed an independent board committee which considered, on behalf of the company, the buyers’ proposed sale agreement.

The board committee’s view was “it is not in the best interests of shareholders to continue progressing and funding the Bendon business”.

Bendon CEO Anna Johnson and Naked’s chairman Justin Davis-Rice are part of the management buy-out (MBO) group. Davis-Rice did not wish to comment, while Johnson is currently on leave and could not be reached for comment by the Herald.

If the MBO fails, however, the board will remain committed to disposing of the Bendon business to cauterise exposure to future losses with an “alternative strategy”, according to information filed with the US Securities and Exchange Commission (SEC) last month.

“In this scenario, [Naked] would seek to exit the Bendon business through a liquidation,” the filing reads.

“This is a multifaceted and complex process involving but not limited to settling all liabilities including staff and leases, disposal of inventory and sale of brands among other things.”

However, a Bendon liquidation is unlikely with Naked “in a very strong financial position” due to capital raised from shareholders in readiness to deploy its e-commerce strategy and platform, the SEC filing explains.

“Accordingly, Naked would be obligated to settle all liabilities at full cost. An analysis of the liquidation option has been undertaken and is more than twice the cost to Naked of the [management buy-out], would likely take much longer and would be more risky to deliver as the Naked brand could suffer reputational damage as a result.”

New Zealand accountants Bellingham Wallace were also engaged to estimate the costs involved to effect a liquidation of Bendon. Their advice was Naked would need to contribute a further $25.2 million, assuming Bendon’s existing cash position of $16.5m is maintained, or $41.7m if Bendon’s cash balance is transferred to Naked.

Naked also considered placing Bendon, which employs more than 500 staff, into voluntary administration. However, the significant costs, lack of control and potential harm to the brand made this option less desirable, the SEC filing reads.

Other options to an MBO were considered, the document states, with Australian bankers Allunga Capital (Allunga) and New Zealand firm Antipodes Private Investment Bank (Antipodes) engaged in September 2019 and in mid-2020 to explore alternatives.

Allunga was mandated to seek offers for Bendon’s brand Fayreform, however, it received no material offers, while Antipodes reported no interest from the market in acquiring the whole of the Bendon Group and the Bendon brands had a low stand-alone value.

Despite investing in a turnaround plan from December 2018, the Bendon Group has incurred $78.9m of net losses before tax over the three-year period ending January 31 this year.

The board committee was of the view the Bendon Group will continue to incur losses through to financial year 2024, the SEC filing reads.

“These losses will continue to impact [Naked’s] cash flow and, based on management forecasts, will require the deployment of further capital to fund which could otherwise be used to grow the company’s e-commerce business,” it states.

“Bendon is also affected by the unpredictability of trade due to current and potential trading impacts from Covid-19-related shutdowns given its bricks and mortar focus. Accordingly, the board expects the Bendon Group business to continue to hamper the company’s growth and value.”

Since Naked listed in 2017, Bendon itself has accumulated operating losses of more than US$56m ($78.4m), the SEC filing reads.

In January, Naked saw its share price triple at one point as Reddit users drove up the price of several penny stocks.

Bendon was once majority-owned by embattled Kiwi businessman Eric Watson and his associated companies.

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