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July 07, 2007

Well, Yes....

I would comment, as you do indeed ask me a question.

There’s no equity of risk and reward here, workers have worked even knowing that they aren’t going to be paid, don’t they deserve reward too Tim?

But to do so there would require that your comments system actually worked.

There's a horrible misunderstanding by DM Andy here. I stated that (with reference to Kwik Save) capital provides something essential for a business to operate. As such, could people perhaps complain a little less when they get, as profits, their reward for providing that necessary (but not sufficient) thing for a business to run.

Andy's run off and started talking about management not sharing the trials and travails of the workers who will be paid only statutory redundancy .

Andy, please, let us know where you did economics will you? Or business studies even?

Management are not the providers of capital. Shareholders are. Whoever were the shareholders in Kwik Save (and I have no idea who they were) have lost all of their investment. The workers have lost some of their redundancy and possibly even some of their wages and they'll certainly have to wait to get whatever they do, out of the statutory compensation schemes.

That managers can come out of something like this relatively unscathed isn't something that pleases me either, but repeat after me: management and shareholers are not the same group of people. Shareholders have lost their entire investment.

You can complain about the amount that the managers were paying themselves as they ran this company into the ground all you like and I'll be cheering you on (probably).

But it still doesn't negate my original point about the providers of capital: when things go wrong, as here, they lose everything they have put in. When things go right, try not to begrudge them their profits, eh?

July 7, 2007 | Permalink

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"Whoever were the shareholders in Kwik Save (and I have no idea who they were)"

Somerfield.

Posted by: Mark Wadsworth | Jul 7, 2007 6:14:08 PM

Mark

Under it's new private equity owners Somerfield (for whom I work) finally gave up on Kwik Save in early 2006. 102 stores were converted to Somerfield stores, 171 were sold to a new company called Back To The Future (BTTF) which aqcuired the rights to the Kwik save name while the remaining 110 stores were sold to other retailers or closed. BTTF later acquired another 48 stores.

I don't know who the investers behind BTTF were but they clearly hadn't got much of an idea in what they were investing in as the stores that they bought were never going to be a viable chain. Firstly Somerfield had already picked out the better sites for conversion leaving only smaller stores in low demographic areas and more importantly these stores had traded poorly even with the fairly substantial investment that they received from Somerfield. Quite why the investers behind BTTF thought they could make things worse I don't know but within Somerfield it was almost universerly accepted that they would do well to last a year. I was relaiably informed that within 2 months of the transfer that many of the stores had seen their sales fall by more than 50%.

Posted by: Richard Allen | Jul 7, 2007 9:15:09 PM

Nope Mark, Somerfield was sold off to a consortium of Apax Partners Worldwide, Barclays Capital and the Tchenguiz Family Trust in December 2005, then they sold off some Kwik Save stores to an outfit called BTTF Ltd headed by Paul Niklas.

Tim, I do know the difference between management and shareholders but as the main shareholder was also the CEO, that's not applicable in this case.

What actually happened inside Kwik Save might never be known but it seems inconceivable that only 4 months after receiving £50m in additional funding, Kwik Save was in a position that even when it's not paying it's suppliers it was unable to pay it's employees. My assumption is that the management/owners of the company were deliberately running Kwik Save into the ground. It would be fascinating to know how much Mr Niklas was paying himself while the workers got nothing.

Tim adds: "Tim, I do know the difference between management and shareholders but as the main shareholder was also the CEO, that's not applicable in this case."

Yes, it is applicable in this case as it is in every case. We must always distinguish between returns to labour and returns to capital. As a shareholder, a provider of capital, Miklas has lost whatever it is that he put in. As a manager, ie a provider of labour, he has a different arrangement, whatever that might be.

Remember, I was talking about profits, which belong to the providers of capital, not to suppliers of labour such as management.

Also worth pointing out that we will indeed find out what happened. When the statutory redundancy schemes are called in there is always an investigation.

Posted by: DM Andy | Jul 7, 2007 9:33:09 PM

"What actually happened inside Kwik Save might never be known but it seems inconceivable that only 4 months after receiving £50m in additional funding, Kwik Save was in a position that even when it's not paying it's suppliers it was unable to pay it's employees."

Not really. Much of that £50 million could have gone on paying existing debts and if the sales situation was a bad as I have been led to believe the company must have been making a substantial loss week in week out.

"My assumption is that the management/owners of the company were deliberately running Kwik Save into the ground. It would be fascinating to know how much Mr Niklas was paying himself while the workers got nothing."

My assumption is that an unviable chain was been run by an incompotent (and somewhat deluded) management team. I do however share your suspicion that Mr Kiklas did not do as bad out of it as the workers.

Posted by: Richard Allen | Jul 7, 2007 10:16:35 PM

Richard, DMA, thnks for update, I was vaguely aware that Somerfield, who paid £400m for Kwik Save ten years ago had cut their losses recently, it amazes me that they found a bigger fool ... or did Somerfield pay somebody else to take the wreckage off their hands?

That said, I used to really fancy an Afro-Caribbean lass who used to work in my local Kwik Save ten years ago. It's a "99p Store" now.

Posted by: Mark Wadsworth | Jul 7, 2007 10:21:40 PM

"or did Somerfield pay somebody else to take the wreckage off their hands?"

BTTF paid an "undislcosed fee" for the stores they bought. Andy seems to think that the paid upwards of £100 million but that is far more than what I have heard. At the time Somerfield was so desperate to get rid of these stores that they were probably all but given away.

Posted by: Richard Allen | Jul 7, 2007 10:30:32 PM

Fair enough Richard, the £50m they managed to get invested in February could have gone towards previous debts, though there's something still a bit odd about this as the group had got £30m worth of investment in October 2006 and seem to have spent most of it buying another 45 stores from Somerfield.

I wonder if any of the finance-savvy types reading this can explain one thing though, in their last return of January 2007, Somerfield owned 1 10p redeemable preference share in Kwik Save Group Ltd. Can anyone explain why a company selling a business would retain 1 share?

Posted by: DM Andy | Jul 7, 2007 10:32:02 PM

DMA - so they would know who might be buying it and for how much, praps? Good information, and certainly worth 10p.

Posted by: Roger Thornhill | Jul 8, 2007 3:42:52 PM