The private equity firm behind Phones 4U has, far from losing money on its brief ownership of the business, made a profit of millions of pounds despite the retailer’s collapse this week with the likely loss of thousands of jobs.
When BC Partners bought the business from its previous backers in 2011, it only put in about £200m of its own cash.
It then borrowed £205m from City lenders and, with a top-up of cash from the business, paid itself a dividend of £223m. Sources at the firm confirmed last night that it had not spent any more of its funds’ money on the failed business since then, meaning it has made a profit of £18m on the deal. While that may not be a huge amount by private equity deal standards, it will be hard to swallow for the 5,500 staff who expect to lose their jobs.
Under BC Partners’ ownership, Phones 4U also sold its Lifestyle Services Group division for £106.4m last year, according to the accounts.
TUC General Secretary Frances O’Grady said: “We have seen far too many cases of private equity firms borrowing money to take over companies, stripping them of assets and leaving them vulnerable to financial collapse. This model of value extraction is bad for business. It is always the workforce that ends up paying the price.”
BC, which invests money on behalf of pension funds and other investors, set up a company in Jersey to take over Phones 4U – a common technique to reduce tax bills when businesses are sold on.
Scrutiny of the company’s complicated accounts shows that its main trading company, called Phones4u Finance Plc, also paid a dividend last year totalling £70m, although BC sources stressed this was only money flowing from one division to another and never actually left the business.
BC raised the money for the £223m dividend it paid itself by Phones 4U issuing a bond that was bought by big City investors. That was at a time before the big mobile operators began pulling out.
While staff were stunned to learn of the collapse of the company on Sunday night, bond investors had been aware that they had probably lost most of their money two weeks earlier, when Vodafone told the company it would not be renewing its supply agreement. The bonds collapsed in value from 87p in the pound to just 30p in less than two hours before sliding further, to just 13p, according to Reuters.
Bondholders, and other lenders, owed £430m are examining their options to seek possible legal redress and have hired law firm Brown Rudnick to advise them.
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Key to their claim could be reassurances reportedly given to them by management even after Vodafone pulled out, that the business remained strong and was confident of making its next “coupon” payment to bondholders – effectively an interest instalment.
Yesterday, Phones 4U’s insurance arm Policy Administration Services was put into administration under PWC. Its Dan Schwarzmann said policyholders with Phones 4u Care or Premierplan mobile phone insurance policies remained covered.
Dixons Carphone has offered to hire 800 people who work in Phones 4U concessions at its Currys and PC World stores which pre-dated the Carphone Warehouse merger. The 160 concessions were due to end next year.Reuse content