Carpetright’s major shareholder is planning to take the company private as it tries to fend off competition from its well-funded rival Tapi.
Meditor Capital, an investment vehicle controlled by poker-playing former fund manager Talal Shakerchi, is in talks about tabling a formal offer at 5p a share for the 70 per cent of equity it does not already own, according to the retailer.
Shareholders representing a quarter of Carpetright’s capital have indicated their intention to accept. The bid values the company, which a few years ago was in the FTSE 250 index, at just £15.2m.
The acquisition price is less than a quarter of the 28p at which investors bought new stock in a £60m fundraising in May last year.
Difficult trading conditions and an excess of space have been compounded by competition from Tapi, a private company backed by Philip Harris, the founder of Carpetright, and managed by his son Martin.
Tapi has expanded rapidly, helped by funding from Lord Harris and other wealthy individuals such as DFS founder Graham Kirkham, and now operates 129 stores. It has often targeted locations where Carpetright stores are already trading.
Despite racking up losses of £37m since launch, Tapi’s backers have repeatedly provided fresh capital to the company.
Mr Shakerchi played a pivotal role in a recapitalisation of Carpetright last year, which also saw more than 90 stores close under a company voluntary arrangement.
However, Carpetright said on Thursday that it would need to find around £80m to repay loans that mature in 2019 and 2020 and provide working capital and funds for investment.
It said it had considered asset-backed lending, strategic asset sales and equity financing, but that the Meditor proposal would facilitate a conversion of debt to equity and provision of further loans.
Carpetright added that the flooring market remained challenging, reflecting the wider economic and geopolitical backdrop. In the first half of its fiscal year same-store sales grew in all territories, but the company cautioned that “the ongoing impact of negative consumer confidence and Brexit on the current retail environment could present a challenge.”
It said a stronger balance sheet would allow it to invest in store refurbishment, staff training, ecommerce, marketing and its European operations.
The company said it “will also use the new funds to mitigate the impact of competition in the sector”. Despite its parlous financial condition, Carpetright is still the market leader in UK floorcoverings, with a market share of more than 20 per cent.