Insolvency practices and Woolworths

Friday, 4th December 2009 09:45 - by Boredmum

You may remember back on May 16th I wrote a piece about NAV (Net Asset Value) and asked the question if we can really rely on NAV and what true value did it have. http://www.lse.co.uk/blogs/boredmum-blog/bhnpb0/ The example I used was Woolworths. Unfortunately, I believed there was value there and so did many others (small private investors as well as some substantial shareholders). The NAV was said to be around 16p, when the share price was trading at around 7p at the time of their September interims. Now, the reason I bring this up is because of some very recent comments made - almost a year on from administration. These comments have been made from some high profile people involved with Woolworths; the Chief Executive Officer (CEO) Steve Johnson apparently had a plan to save the business. From an article I read: “Mr. Johnson had presented Woolworths' syndicate of 10 banks with a radical plan to sell Woolworths' 807 stores to turnaround specialist Hilco and dispose of its 40pc stake in the 2entertain video publishing joint venture with the BBC. He would use the bit that was left – the 'Entertainment UK' CD and DVD wholesale arm – to turn Woolworths into a major distribution and logistics business. All that he needed was for the banks to back him. Over the next week the banking syndicate, which was led by GMAC and Burdale Financial, a division of the Bank of Ireland, decided that there were too many uncertainties in Mr. Johnson's restructuring plan. On Wednesday November 26th, the board voted that administration for the high street chain and Entertainment UK was the only option. Mr. Johnson's plan was in tatters and the company folded.” Then there is the twist…could Woolworths have been saved? Some executives have questioned the role of Deloitte (the accountancy firm advising Woolworths bank’s and then appointed as Administrators), potentially a large conflict of interest, especially in light of the huge fees that they collected as Administrators. Only last month, both Steve Johnston and Richard North (Woolworths Chairman) were quoted as stating that Deloitte had a "clear potential conflict of interest". It seems the OFT (Office of Fair Trading) have launched an investigation into U.K. insolvency practices and, although no-one is stating that in this case Deloitte’s has done anything outside of good practice, it has to be questioned if things could have been much different. Of course, knowing all this doesn’t help matters. The stock market is black & white; you either make money or you don’t. No grey area, no in-between, no could have been...