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Wednesday, November 26, 2008

Woolies Suspended

The Times reports that shares in Woolworths have been suspended at 1.22p this morning, as the company attempts to conclude talks to sell its 840 store retail business.

Hilco are understood to be prepared to buy the retail division for £1. However, the banks that Woolies owes money to are less than happy with the possible losses arising on such a deal.

Added to the problems that Woolies faces, in trying to secure a deal, is funding the wage bill and continuing to trade "solvently". The directors are under a legal obligation to trade solvently, in the event that Woolies becomes "insolvent" (ie the banks refuse to provide any more working capital) then the company will be forced into administration thus threatening 30,000 jobs.

In the "good old days" of "privately" owned banks (ie before the banks went cap in hand to the government for a bailout) the banks would have only themselves and their "consciences" to answer to wrt pushing a company in administration.

However, now that they are semi nationalised, for them to force 30,000 people onto the dole queue in this manner would be a tad "politically unwise" to say the least.

That being said the banks are very capable of making a very foolish decision and consigning Woolies to the dustbin of history, were they to do so they would be signing their own death warrants.

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