Discount chain B&M European Value Retail SA (LSE:BME) said it has struck a deal to snap up several of its rival Wilko's stores out of administration for £13 million.
The FTSE 100-listed group said it was hoovering up a maximum of 51 properties out of the total of 400, using a portion of its cash reserves.
After teetering on the brink for several weeks, a bid from private equity firm M2 Capital fell through last week and it was reported that HMV-owner Doug Putman was edging closer to a rescue deal.
Putman was reported to be aiming to keep 300 of the 400 Wilko shops currently open, saving around 8,000 of the total 12,500 employees’ jobs.
However reports suggested the Canadian businessman's deal has run into difficulties over demands from suppliers to be paid.
Cherry picking
B&M had a stated ambition to get to 950 stores and this has been given a significant boost by “potential cherry picking” of Wilko’s most profitable stores, said analyst Orwa Mohamad at Third Bridge.
With B&M’s focus on out-of-town locations, this means it can incorporate many of Wilko’s high street stores and locations with limited cannibalisation impact, Mohamad added. “From an assortment perspective, there’s a high degree of crossover between Wilko & B&M in households, garden, toys, accessories. Quite often, Wilko & B&M sell the same product, meaning consumers have a strong incentive to continue frequenting those stores regardless of the banner.”It was not year clear how many jobs might be saved by B&Ms move.
“A good chunk of positions should be salvaged, but B&M is likely to want to run a highly efficient ship, to squeeze as much profit out of the floorspace analyst,” said Susannah Streeter at Hargreaves Lansdown.
Shares in B&B were languishing 6% in the red after an earlier downgrade of the company alongside with Tesco and Sainsbury’s by JP Morgan.
However, the Wilko deal saw the stock regain some ground, down almost 3% at 550.8p.
Some investors are clearly hoping it “could be a spur to sale growth, especially given how focused consumers are on seeking out value right now”, said Streeter.
On the hopes for a larger white knight rescue of the Wilko by Putman or someone else, she added: “At the most, it looks like a scaled down bid for the chain will be clinched, which would save the famous red and white frontage but Wilko’s presence on the high street would be a pale comparison to its heady days of success.”