Mobile phone retail giant Phones4U has entered into administration following a decision by two major suppliers not to renew their contracts with the company.
Phones4U, which operates 720 outlets worldwide and 550 stores in the UK, did not open its stores this morning (15 September 2014) after EE and Vodafone failed to agree on new supplier terms. 5,596 employees are now facing the threat of redundancy.
Vodafone first decided against renewing its supplier contract with Phones4U earlier this month. The final straw was EE’s decision to follow suit just a few weeks later. The company’s owners, private equity firm BC Partners, have been left with little recourse other than to appoint a team of insolvency practitioners to handle the administration.
Phone 4U’s 550 standalone stores will remain closed until the administrators reach a decision about whether the business should be reopened for trading.
A complete shock to the business
The withdrawal of EE, which comprises of T-Mobile and Orange networks, came as a complete shock to the business, which reported a healthy profit of £105million on turnover of over £1bn just last year.
However, following the withdrawal of Vodafone, EE was the retailer’s only partner and was crucial to the chain’s survival. Once EE refused to renew their contract, due to end in September next year, administration was inevitable.
David Kassler, chief executive of Phones 4U, said: “Today is a very sad day for our customers and our staff. If the mobile network operators decline to supply us, we do not have a business.
“A good company making profits of over £100million, employing thousands of decent people, has been forced into administration.
“The great service we have provided should have guaranteed a strong future, but unfortunately our network partners have decided otherwise. The ultimate result will be less competition, less choice and higher prices for mobile customers in the UK.”
The focus of administrators
The administrators’ priority will be to engage with any parties that may be willing to acquire all or part of the business. They will also work to better understand the financial position of the business, along with any other options this may bring.
Along with engaging network operators and existing suppliers, the administrators will also attempt to access the funds they need to pay the outstanding costs of the business, including staff wages. The administrators intend to continue to pay employees until further notice. All mobile contracts purchased through Phones4U will remain unaffected and the networks will continue to provide mobile services to these customers.
Designed to inflict maximum damage
Stefano Quadrio Curzio, BC Partners executive, said: “Vodafone has acted in exactly the opposite way to that they had consistently indicated to the management of Phones4U over more than six months.
“Their behaviour appears to have been designed to inflict the maximum damage to their partner of 15 years, giving Phones4U no time to develop commercial alternatives.
“The company is in a healthy state and both EE and Vodafone had, until very recently, consistently indicated that they saw Phones4U as a long-term strategic partner.”
As this situation clearly illustrates there is no way of knowing your creditor’s end game so the best advice is not to assume their intent. We have had a number of situations where the debt has been irrelevant to the creditor’s objective other than a tool to be utilised. These are very stressful situations for directors so there is a need to take the emotion out of the situation and seek an objective professional and experienced view.
For all the latest insolvency, liquidation, administration and business rescue news, please stay tuned to the Jameson, Smith & Co. blog. For a free consultation or for more information about any of our services, please get in touch with one of our experienced turnaround practitioners today.