Edcon has secured a deal in principle to recapitalise the business, averting the possible sell-off of the retailer's brands or closure of the country's largest non-food retailer.
This would be a huge relief for the thousands who are employed by the company, supply it or buy from it. The group, which is nearly 90 years old, has 27,000 permanent employees. With seasonal or casual staff this increases to about 40,000.
The deal was not yet binding and still needed to be implemented, said CEO Grant Pattison, but the nonbinding expressions of interest were reached in the last week of December.
"Everyone has agreed to the basic terms. Now it's about putting in place the detailed clauses of the final agreement."
Previous reports said the deal included Edcon's landlords being asked to take a significant reduction in the rentals from Edcon, in exchange for a small stake in the company. A letter to this effect was leaked to the Sunday Times at the end of last year. Pattison said this was speculation and he could not comment on it.
There were likely to be about 250 shareholders in the recapitalised business after the deal was implemented. The participation of any new shareholders was not yet finalised, so the company would not disclose who they were.
It is not yet clear if the Public Investment Corporation would be a shareholder. Deon Botha, head of corporate affairs at the PIC, said it had been approached in relation to the Edcon situation. "The proposal is being subjected to the PIC investment processes, after which a decision will be made."
Hurdles still exist in the form of regulatory approvals in various jurisdictions in which the company operates and Pattison knows that objections can come from any number of quarters. He navigated the complex sale of Massmart to Walmart, which triggered high emotions from unions, the government and local manufacturers, among others.
"I'm feeling positive," Pattison said - for the first time since taking over at Edcon.
After a highly geared private equity buyout by Bain in 2007 for R25bn, the group was left reeling in debt and has had to continue to borrow and change strategy to ensure its survival. The credit crunch (in conjunction with the debt) after the buyout nearly sank the company.
Meanwhile, competitors gobbled up market share, and new overseas entrants such as Cotton On, H&M and Zara changed the retail landscape.
As for recent trading, Pattison said the group had an encouraging third quarter of its financial year, spanning October, November and December. "It appears that we've grown profits relative to the same period last year. That's significant."
About 7% of space within the group has been closed over the past year, while sales have declined less than 7%.
"This was done by focusing on taking Edgars back to a private-label clothing business, by exiting appliances, general merchandise and food in Jet. CNA has focused back on stationery and education."
For the first time since 2012 credit sales increased at the same rate as cash sales, and the number of active accounts increased. "The biggest mistake Edcon ever made other than the [Bain] deal was selling and mismanaging the [credit] book," Pattison said.
The best-performing brands within the Edcon stable were the ones that appealed to younger shoppers, the teens and early twenties, brands such as Free2bu and JX Exchange. Edgars has shifted from being heavily invested in TV adverts to also using social media, billboards and radio.
The group would continue to close about 5% of space a year until the right balance was found, possibly about 300,000m2. After that it may expand.
Pattison was optimistic because challenges were not systemic and related to the industry - rather they were within Edcon's control. "A couple of years ago we had strategic problems. We have had to shrink instead of expand; focus on local brands rather than overseas ones; rationalise formats; grow rather than shrink credit. This year management focus will be on the getting the basics right: product and service."..