Reality bites at Bonmarche as directors U turn on takeover

You could be forgiven for thinking that beleaguered retailer Bonmarché has been serving up a political story given the way its troubles have played out. It has all the elements: bullish optimism in the face of a chill reality, fanciful plans, and, dare I say it, a good dash magic thinking.

This morning saw that reality biting hard, with the business recommending a cut price takeover by billionaire Philip Day that it had thrown out a just a couple of months ago.

The saga started in April, when the struggling chain woke up to find itself under the de facto control of the amusingly named Spectre Holdings, Day’s Dubai based vehicle that had gobbled up just over half the share capital at 11.445p.

Under stock exchange rules, this meant he had to offer to buy everyone else out under the same terms. But even though the shares, which were worth ten times his price less than a year ago, were in a pit they weren’t that low. So apparently taking the market’s verdict as a sign of confidence in them, the company’s directors opted for what you might describe as a Boris Johnsonian denial of reality, if you were feeling less than charitable.

“The Bonmarché directors consider that the offer materially undervalues Bonmarché and its prospects,” they declared and told shareholders they shouldn’t accept it.

There was also a promise, well it was phrased as an “expectation”, that the “delivery” of their “cost reduction actions which have begun to be implemented… should result in the improved operational and financial performance of the business”.

There’s your fanciful plan because now, after “continued weakness in the underlying clothing market” combined with the old chestnut of bad weather keeping customers at home, they’re telling shareholders to throw in the towel.

The surrender document, posted to the stock exchange this morning, still claims that the offer undervalues the business, at least in the long term. Trouble is that it also admits that auditor PwC had “during informal discussions” told directors it might have to make reference to some doubts about the business’s status as a “going concern” upon the filing of the accounts.

Tougher regulations backed by heavy fines and about the same level of negative press that the Tory Party is currently managing have combined to force auditors to do their jobs. PwC is basically saying we’re not going down with you.

If the board now recommending the Day offer isn’t enough to spark a rush for the exit among the group’s remaining shareholders, the auditors’ view surely ought to do the trick.

So the owner of Edinburgh Woollen Mill Group, which has an increasingly bulging basket full of famous retail names, will get his deal and his chance at fixing the business away from the scrutiny of the stock market. The people working there, and Bonmarché's landlords, had best buckle down for a rocky few months.