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House of Fraser has “No Viable Future” as Store Suffers Rescue Deal Termination

House of Fraser

British retail department store House of Fraser (LSE:HOF) has an ambiguous future ahead of itself. The failing retailer has suffered another blow as its potential new owner has walked away from a deal which may have just rescued the store.

What Happened?

The plan was for Chinese fashion conglomerate (and also the owner of Hamley’s toy store) C.banner International Holdings Limited (C.banner) (HKG:1028), to take control of the struggling department store chain and inject £70m of much-needed cash into rescuing it.

However, the Chinese firm did a U-turn on its investment, which has left House of Fraser in crisis.

The reason? Well, it would appear C.banner’s finances aren’t faring too well either as its shares fell a whopping 70% in the last two months. The company had been planning to raise the money needed for the House of Fraser investment by issuing new shares.

Alas, a profit warning issued today sealed the deal for the company and it had to terminate the agreement “effective immediately.”

In a statement to the Hong Kong stock exchange, C.banner said the share placing had been “rendered impracticable and inadvisable.”

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Now House of Fraser has “no viable future” according to market analysts.

Could Debenhams Come to the Rescue?

According to Andrew Busby of the consultancy Retail Reflections, the collapse of the deal did not surprise him and he said that the proposed rescue deal had “always been on fairly shaky ground.”

He continued: “House of Debenhams is becoming more and more of a reality – that’s the best outcome for House of Fraser.”

So a potential merger with department store rival Debenhams may be the only solution for House of Fraser perhaps? 

That’s if Debenhams would be interested.

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House of Fraser

The closure of House of Fraser would mean the loss of 17,500 jobs, so a rescue operation is needed to avoid such total job-loss.

The department store had agreed to a controversial restructuring deal with its landlords in June. This would have seen the retailer cut stores in order to save money, whilst also keeping a significant number of stores open. However, its landlords were opposed to the restructuring deal and contested it with a legal challenge.

Knight in Shining Armour

In response to losing the deal with C.banner, House of Fraser said it was in talks with other investors and was exploring other financing options: “Discussions are ongoing and a further announcement will be made as and when appropriate.”

These “other investors” could be a knight in shining armor in the form of Mike Ashley. It is reported that he has approached the store with a potential investment plan. Mike Ashley is the founding director of Sports Direct. He already controls 11.1% stake in House of Fraser and a 30% stake in Debenhams.

The next few weeks will spill all, but until then, the department store, with its 17,500 jobs, has a future hanging in the balance.

Featured Image: Google Images/ Mirror