Athena sacrificed to keep Pentos solvent

PENTOS decided to sacrifice Athena to prevent the poster chain's mounting losses dragging the entire group into insolvency, according to a source close to the board.

The retail group ring-fenced Athena last week and placed it into administrative receivership, leaving creditors of the subsidiary nursing heavy losses. Some are seeking legal advice.

According to the source, "Athena was haemorrhaging cash. Long term it could have brought down the entire group. You have to cut out the gangrenous bits to save the rest of the body.''

Pentos, whose core business is the Dillons bookselling chain, now has to convince its bankers, Barclays and Midland, to continue extending loan facilities of about £70m. These come up for renewal at the end of February.

Unless these are agreed, Pentos faces the prospect of a major restructuring, with debt swapped for equity. A rescue rights issue would be virtually impossible as the shares are floundering at just 14.5p. Pentos last held a rescue rights issue last March,raising £45m.

One breakthrough would be the successful sale of the Ryman office products chain. Pentos has received expressions of interest, but for far less than the company's £15m book value. Even before the Athena decision, Pentos was expected to report 1994 lossesof about £38m. The Athena hit could add another £7-10m of exceptional write-offs.

Some predators have looked at bidding for the whole of Pentos, including, reportedly, Barnes & Noble, the American discount bookseller. However, bidders are concerned about costly leases that Pentos locked into in the late 1980s and early 1990s.