Overview: sofa so good

Furniture group MFI has certainly taken some stick in recent times. From IT
supply chain problems through to the downturn in the retail sector, the business
has certainly hit upon hard times and finds itself at a crossroads.

Attempts to sell its retail arm and focus on its profitable joinery business
Howdens is the plan for group FD Mark Robson and the rest of the board, but a
possible sale to Merchant Equity Partners is dragging on over concerns about the
amount of debt the new owners would have to handle, with MFI expected to have to
put up to £100m towards the deal.

What’s happened?

Falling sales revenues, down 9% for year end June 2006 to £1.4bn, have forced
MFI’s hand, with just Howden Joinery proving to be the company’s shining light.
So far attempts to sell the retail arm have been complicated by a number of
factors, including the amount payable by MFI to the buyer and the company’s
pensions liabilities, the latter an area that Robson has put his efforts into

Other information has been hard to come by, as far as analysts looking at the
future of the business are concerned. They have highlighted a lack of
forecasting and a lack of information about the deal being bashed out between
MFI and MEP.

But things have taken a turn for the better for MFI this week as it appears
the retailer will divest itself of upholstery chain Sofa Workshop, with a deal
likely at the modest price of £10m, having paid £12.25m for the business four
years ago.

What is going to happen?

Concerns over management of MFI’s pensions liability – measured at £200m – is
thought to be a key part of the negotiations, and will influence the ‘dowry’
that MFI gives the buyer.

But while a deal with MEP is expected soon for the retail arm, a failure to
close the deal does not necessarily mean failure for MFI.

It has already stated that other parties have been part of negotiations, and
it’s possible that other rumoured purchasers, such as Wickes owners Travis
Perkins, who were rumoured to have sniffed around some of MFI’s stores, could be
asked again to look at the whole package.

Robson could find himself putting the retail arm around other investors if
the MEP deal does not materialise imminently, and could face further losses if
its retail arm stays on board.


MFI group FD Mark Robson has been a busy bee since he took on the role two
years ago. His main focus in recent times has been managing the company’s
pension deficit. He worked with trustees and banks to strike a refinancing deal
he described as ‘innovative’ to give the company.

Some breathing space, and which did not require a big payment into the fund.

But he told AccountancyAge that the retail arm sale would open up the deficit to
discussion again.

He feels MFI has established a ‘good relationship’ with the trustees and the
pension regulator, and would be confident of a ‘positive outcome’ if and when
the situation occurs.

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