Carpetright’s biggest shareholder has tentatively offered to buy the retailer to avoid the company collapsing under a mountain of debt.
Meditor, run by former Old Mutual fund manager and poker player Talal Shakerchi, has started discussions with the business and indicated it would be willing to pay 5p a share – valuing the business at just £15.2 million.
The announcement sends shares in Carpetright plunging 50% to 4.75p – just below the offer price.
Bosses at Carpetright believe the company needs about £80 million to pull itself out of its debt problems.
They explained current gross debt levels are at £56 million. Net debt is £27 million but the company said it expects this to rise to between £40 million and £50 million by December.
If a formal offer is made, Carpetright has revealed other shareholders are willing to accept the deal or said they intend to vote in favour, including Aberforth Partners with a 12.6% stake, Majedie Asset Management with a 6.6% stake and Soros Fund Management with 2.6%.
The deal will see Meditor take full control of Carpetright and the debts will be turned into equity in the business.
Bob Ivell, chairman of Carpetright, said: “Shareholders will be aware that we have been engaged in comprehensive refinancing discussions to replace existing facilities which expire at the end of this calendar year.
“The possible offer being announced today would put in place a new financing structure for Carpetright which would enable us to continue our recovery and make necessary investments in improving our business.”
Meditor now has until November 28 to make an offer or walk away.
In September the business took control of Carpetright’s revolving credit facility of £40.7 million, instead of previous lenders NatWest and AIB, although a day-to-day overdraft of £6.5 million with NatWest and Ulster Bank remains.
Carpetright has been struggling with a huge debt pile for several years and was forced to turn to Meditor for two short-term loans last year.
The first in March was £12.5 million, with an arrangement fee of £1.9 million and 3% interest. The second – a £15 million loan in May – came with a £2.3 million fee and interest of 18%.
Last year had been particularly hard for Carpetright, with a company voluntary agreement (CVA) insolvency process leading to creditors taking a hefty cut to their debts.
It also led to 80 stores closing and would see Carpetright pave the way for several retailers to use CVAs.
Earlier this year, the company revealed sales had taken a significant dent – down 13.4% to £386.4 million – with customers staying away over fears that the chain could collapse.
Pre-tax losses improved, however, from £69.8 million to £24.8 million.