Dominic Chappell’s £1 takeover of BHS last year was a “bit of a punt” and part of a “very ambitious” wider plan to takeover a string of other retailers, according to a City of London financier who helped drum up backing for the deal.
Chappell, a former racing driver who has twice been bankrupt and had no retail experience, bought the loss-making retailer for the nominal £1 fee last year.
It collapsed into administration last month, putting 11,000 jobs at risk, and the 20,000 member pension scheme has been absorbed by the state-backed “pensions lifeboat” to cope with the estimated £275 million ($404 million) deficit.
Andrew Frangos, CEO of stockbroker Cornhill Capital, told MPs on Wednesday that Chappell started out as “one of thousands” of Cornhill’s broking clients before approaching Frangos to arrange finance for a possible takeover of BHS.
While a nominal sum of just £1 changed hands when Chappell’s vehicle Retail Acquisitions bought BHS from Arcadia last March, the terms of the deal required the new owner to invest millions into the business, hence the subsequent fundraising.
Frangos admitted that Chappell had “no CV” and the whole thing was “a bit of a punt,” but he said he agreed to do business with him because Chappell “indicated that it [his vehicle Swiss Rock, which Cornhill initially dealt with] could go on to do other deals” — in other words, more business.
Frangos said initially the conversations were around a different acquisition and involved Paul Sutton, a twice bankrupt financier who retail billionaire Sir Philip Green refused to sell BHS to in 2013. But during the discussions, Chappell replaced Sutton at the negotiating table. Sutton and Chappell have close links, according to an investigation by the Sunday Times.
Frangos told the Parliamentary inquiry into the collapse of BHS that Chappell was “very stop-start” and offered wildly differing estimates of how much money he would need: between £30 million and £200 million.
All the funding that Cornhill Capital was lining up would be secured against BHS’ property as collateral for loans. The terms of Cornhill’s engagement with Swiss Rock, Chappell’s vehicle at the time, also included a 2% of any future BHS property sales, something that Frangos said would only have been done to help fund the business.
The terms also mention, rather unbelievably, the possibility of Chappell going on to take over Arcadia Group, BHS’ parent company. Arcadia is the main company of retail billionaire Sir Philip Green and includes High Street stalwarts Topshop, Dorothy Perkins, and Miss Selfridge. Not the typical takeover target for a man with no money and “no CV.”
Frangos wouldn’t be drawn on the Arcadia point but said simply that Chappell’s plans were “very ambitious.” Other retailers were also talked about, Frangos said, but would only refer to targets in vague terms like “a Swiss retailer” and “a small UK retailer.”
In the weeks running up to the BHS deal, representatives of Retail Acquisition, a new vehicle that Chappell headed and went on to do the deal for BHS, would not turn up to meetings with ultra high net-worth individuals that Cornhill Capital had arranged. Eventually, the deal was done with funding from elsewhere. Frangos said he understood £35 million was put into the new venture, sourced from Allied Commercial.
Frangos says Cornhill Capital is now in dispute with Retail Acquisitions as it believed it was under contract. The Evening Standard reports the stockbroker could sue Chappell’s company for £1 million.
Frangos’ testimony is likely to turn up the heat on Sir Philip Green, the former owner of BHS, and his advisors. MPs are angry about the sale to Chappell given his past business record and lack of experience in retail. They are probing what checks and advice was given to ensure Chappell would be able to properly steer the business after the sale.