Woolworths trouble could knock rivals, City fears

City analysts feared that the timing of the discussions and the mooted price of just£1 indicated Woolworths’ trading was critical and that an administration of the core stores division was possible.

Dresdner Kleinwort analyst Sanjay Vidyarthi warned: “Were Woolworths Retail to be put into administration the consequences for the rest of the high street could be significant given Woolworths has sales of more than£1.7 billion and significant market shares in many product categories.

“Short term – ie, this Christmas – if the business is run for cash this could adversely impact the likes of Game, WHSmith and HMV.” In the longer term, however, Woolworths’ rivals are likely to benefit from its reduced high street presence.

An industry source believed an administration was on the cards and that other potential buyers were considering whether to make an offer. In the event that Woolworths was broken up, he said retailers such as Primark and Poundland were likely to take stores.

Woolworths, which is expected to update on trading imminently, said sale discussions were at the preliminary stage and there was no certainty that a deal would be done.

A sale is likely to be dependent on how much of Woolworths’ debt Hilco would be willing to shoulder and responsibility for the retailer’s£100 million pension fund deficit.

The future of Woolworths, which has 800 stores, has been the focus of intense speculation. In the summer Iceland founder Malcolm Walker proposed a£50 million takeover but was rebuffed by Woolworths’ board, which in August installed Steve Johnson as chief executive to lead a turnaround.

Property tycoon Ardeshir Naghshineh, Woolworths’ biggest shareholder, believes the business is worth£340 million (Retail Week, November 14). He has drafted in property firm CBRE to undertake an independent valuation of Woolworths’ estate.

No comment was available from Hilco, Naghshineh or Walker.