ScS warns takeover may yield little for investors

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The Independent Online

Shareholders in ScS Upholstery face losing virtually all their investment after the beleaguered furniture retailer said it had entered into exclusive talks to sell the 95-store trading business.

ScS suspended trading in its shares yesterday and said discussions "may result in only negligible value being attributed to the shares in ScS Upholstery". The talks are understood to be crucial to the retailer's survival, although it is unclear if other bidders may come forward if these discussions with an unnamed party collapse.

Shares in ScS have tumbled in the past 12 months from a high of 266.5p on 16 July 2007 to close at 6.5p on 20 June. Last Friday's closing price values the equity of ScS at just £2.2m. ScS has suffered, along with furniture rival Land of Leather, a precipitous drop in sales, as consumers rein in their spend on big-ticket items during the credit crunch.

Last week, Land of Leather unveiled a rescue package to raise nearly £15m in a placing and open offer, but warned that its sales plummeted by 35 per cent in the six weeks to 6 June.

ScS has cited the withdrawal of the credit insurance from some of its suppliers as a key cause of its troubles. Last week, ScS said that although it was debt-free, "the unexpected and sudden withdrawal of credit insurance from the market has placed a strain on the working capital needs of our suppliers".

Robert Clark, the senior partner at Retail Knowledge Bank, said that ScS is a "victim of the market conditions". He said: "Until recently, they had been one of the stronger performers in the sector." However, Mr Clark said that ScS probably expanded too quickly in 2005 and 2006. In the year to 30 September 2006, ScS opened a record number of 21 net new stores. Mr Clark also said that ScS's sales per square foot had declined to £176 in 2007 from £189 in 2006.

ScS said yesterday that the approach by a potential bidder "would see the trading subsidiary being provided with substantial working capital facilities that would fully resolve the working capital issues and ensure all suppliers have a strong and ongoing relationship with the business".

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