Countrywide at risk of entering administration

Connells has issued a counter statement to this morning’s announcement by Countrywide that a possible takeover is underway.

At 7am Countrywide revealed it had been approached by Connells about a possible purchase at 250p per share.

However, Countrywide admitted it had not agreed that statement with Connells ahead of its release.

Now Connells has had it own say - and it appears a damning verdict on the current status of Countrywide.

Connells claims Countrywide’s board admits it is at risk of entering administration without urged recapitalisation which its current lenders appear unwilling to undertake. Connells also says that a recent proposal to invest and restructure the company by private equity company Alchemy would be a risk to Countrywide shareholders.

However, in line with Alchemy proposals, this morning's statement from Connells also demands a major reform of the current senior management at Countrywide, under whose leadership the company has seen significant branch closures and a loss of share value.

Here is the bulk of the Connells statement:

“Connells, one of the UK's largest high street estate agency and property services providers, approached the board of Countrywide on 26 October 2020 in relation to the Possible Cash Offer and is currently carrying out due diligence on Countrywide in order to determine the feasibility of making a firm offer for Countrywide.

“The board of Countrywide has indicated that Countrywide is in urgent need of recapitalisation to reduce its net debt and lessen its exposure to its lenders. The board of Countrywide believes that, in the absence of a recapitalisation, Countrywide is unlikely to be able to execute its business strategy over the short and medium term and there is a risk that it could end up in administration, with Countrywide shareholders losing all or a substantial portion of their investment.

“Countrywide's lenders have expressed an unwillingness either to provide Countrywide with additional financial covenant headroom or to extend the term of their debt commitments to Countrywide without an agreement by Countrywide to reduce the commitment of the lenders under the current credit facilities agreement by at least £50 million. Furthermore, they have indicated that they would not be supportive of a disposal strategy as a means by which to de-leverage Countrywide’s balance sheet.

“Connells believes that Countrywide needs a new management team, with real estate agency expertise, and a new strategy to turnaround the business. The enormous scale of the challenge that the new team will face can be seen by the fact that they will need to reverse the performance of a business that has lost over £500 million pre-tax over the last three calendar years.

“Connells also believes that significant and sustained investment is required in Countrywide’s technology, network and people to put the business back on a solid footing in a challenging market. This required investment will reduce Countrywide's standalone profitability and cash flow in the short and medium term.

“The proposed transaction with Alchemy (the “Alchemy Proposal”) would have resulted in Countrywide shareholders suffering material dilution at a discounted price and being exposed to significant ongoing risk. The business would have been operated by an unproven and, at least in part, unidentified management team, with an uncertain strategy, reduced shareholder protections, high cost debt, and ongoing exposure to a challenging market environment.

“Connells’ Possible Cash Offer, if made, would mean that Countrywide’s shareholders could avoid the significant costs and risks associated with either the Alchemy Proposal or remaining an independent company, and would instead receive an immediate cash premium of 72% to the unaffected Countrywide share price.

“Connells will assess the making of any firm offer for Countrywide in light of the current difficult market conditions, its due diligence findings, the level of additional investment that will be needed by Countrywide and the extent of the turnaround required in the business.

“A further announcement will be made in due course.”