Wm Morrison has mounted a last-ditch rescue bid for McColl’s, prompting petrol station operator EG Group to improve its offer to buy the struggling UK convenience store chain out of administration.
Just hours before a court was expected to formally appoint an administrator, supermarket operator Morrisons tabled an improved offer to win over McColl’s lenders, who had rejected its earlier proposal.
EG, whose owners also control grocery chain Asda, has in turn offered to take on the funding of McColl’s pension scheme. The move attempts to assuage fears it would use a controversial insolvency procedure to break promises made to 2,000 retirement plan members.
The offers on Sunday marked the final hours of a two-way battle over McColl’s, with people close to the process expecting Morrisons and EG to submit best and final bids before a decision is taken on Monday.
McColl’s operates more than 1,200 convenience stores, including more than 200 outlets operating under the Morrisons Daily brand. Any sale might protect some of the 16,000 jobs that would be at risk if the company were to collapse. The convenience store group has debts of about £145mn.
Ministers are watching developments closely, with senior Conservative party figures saying the priority would be protecting jobs and livelihoods. But one government official said the choice between “overleveraged EG and US private equity” was not an especially appealing one. Morrisons is owned by US buyout group Clayton, Dubilier & Rice.
In its latest proposal, Bradford-based Morrisons still aims to keep McColl’s out of administration. But significantly it offered to immediately repay McColl’s lenders in full, rather than roll the debt into the merged group — matching an element of EG’s bid that was seen as critical on Friday.
Morrisons and EG declined to comment. Morrisons’ counter bid was first reported by Sky News.
McColl’s troubles provide Blackburn-based EG group with a rare opportunity to expand its UK grocery store network. But McColl’s existing commercial ties to Morrisons make it advantageous for EG to buy the group out of administration.
After McColl’s rejected Morrisons’ offer on Friday because of objections from its lenders, EG pressed for a swift deal, according to one person with knowledge of the matter.
But the wait for McColl’s administrator to be appointed by a court allowed time for Morrisons to table a counter-offer.
With both bidders effectively offering similar financial terms to McColl’s lenders, the wider plans for the group and its pension scheme could play a decisive factor in determining which offer prevails.
Morrisons on Friday said the decision to place McColl’s into administration was a “disappointing, damaging and unnecessary outcome” for “thousands of hardworking people and pensioners”.
Before Sunday, EG had not made clear how it would approach McColl’s retirement fund, whose trustees on Friday called for commitments to respect existing pension pledges.
They said “breaking the link” between two pension schemes sponsored by McColl’s, by way of a “prepack” administration, would represent a “serious breach” of the pension promises made to staff who had served the business loyally over many years.
“Pre-pack” arrangements can be controversial as they enable pension fund liabilities to be passed to the Pension Protection Fund, the industry lifeboat. While members typically face cuts to their pensions, the business continues under new ownership.
The PPF on Sunday said it would be “inappropriate for us to comment” on the situation at McColl’s.
“However in any potential prepack situation we always work closely with the Pensions Regulator and the company administrator to ensure the best outcome for scheme members, the PPF and our levy payers,” the fund said.