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By Loni Prinsloo and Janice Kew
(Bloomberg) — Edcon Holdings Ltd. agreed to sell part of South African clothing chain Edgars to a private equity-backed regional rival, potentially safeguarding a 91-year-old brand and saving thousands of jobs.
Administrators led by Lance Schapiro and Piers Marsden struck a deal with Retailability Pty Ltd., a holding company for brands Legit, Beaver Canoe and Style, which owns 460 stores across southern Africa. Details of the transaction will be finalized based on further agreements, the business-rescue team said in a statement on Tuesday.
“This is a good outcome for Edgars — if the deal goes through — because they might be able to save more jobs than expected,” said Lulama Qongqo, an analyst at Mergence Investment Managers in Cape Town. “Depending on the purchase price, lenders and real-estate investment trusts may be able to recoup some of the funds owed to them.”
Edcon was put into a local form of bankruptcy protection in late April, after a five-week strict lockdown to contain the coronavirus in South Africa wiped out sales and curtailed a recovery from a 2019 restructuring. Edgars was put up for sale alongside sister chains Jet, which specializes in low-cost clothing, and Thank U, a finance and loyalty-card unit.
Rescue plans for the other parts of Edcon are at an advanced stage, the administrators said. The company as a whole employs almost 18,000 permanent workers and hires about 5,000 more on a seasonal basis.
Less than half the 199 stores that fall under the Edgars stable are deemed viable, according to the business-rescue plan for Edcon, meaning some job losses are inevitable.
“I can’t see it continuing in its current form and the new owners may well have to rationalize the business,” said Rella Suskin, head of research at Benguela Global Fund Managers in Johannesburg. “With South African consumers lacking much disposable income, other local retailers may have been better off without Edgars in the picture. Still, the saving of jobs is a positive outcome.”
A sale of Edgars and the preservation of at least some jobs comes as South Africa’s retail sector and the wider economy reels from the Covid-19 pandemic and various forms of lockdown. Walmart Inc.-owned Massmart Holdings Ltd. said earlier Tuesday it has started talks about cutting as many as 1,800 jobs, the latest in a long line of similar announcements from companies across several sectors.
Retailability, based in Durban, has backers including DEG of Germany and Johannesburg-based Metier Private Equity.
Many potential suitors “have been deterred by the complexity of the business and separating parts from it,” Qongqo said. But Retailability, which bought fashion chain Legit from Edcon four years ago, “has done it before” and “it could be more viable in their hands versus other potential suitors.”
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