The historic New Zealand department store, Kirkcaldie & Stains, which made provisions of $1.74 million onerous contracts for leases in its accounts for the six months ending February 28, is facing a $1.3 million cost for future lease payments of its warehouse and office space in Petone, Lower Hutt.
The company negotiated with the landlord of the Petone premises on February 28 to exit their lease before its April 30, 2023 expiry date on the condition the landord would be able to sell the property. But on April 1, Kirkcaldie & Stains were advised the landlord failed to sell the building.
Kirkcaldie & Stains chair, Falcon Clouston, said in a statement to the NZX that the directors are actively continuing to pursue opportunities to mitigate the ongoing commitments under the leases.
Kirkcaldie & Stains shareholders voted in July last year to sell the struggling brand and assign the store lease to David Jones, in a deal worth $400,000 with an option to purchase its fixed assets for $500,000 that it didn’t take up. The move followed a seven-year period of losses for the struggling Wellington company.
On February 26, Kirkcaldie & Stains received a takeover notice from Mercantile NZ Limited to purchase 100 per cent of its ordinary shares for $2.75 in cash per share. The company, on April 1, issued a target company statement in relation to the offer with a recommendation to shareholders to reject it. The directors estimated in the target company statement that a residual value of $2.99 to $3.49 per share could be achieved on winding up Kirkcaldie & Strains.
The main factor which will determine the final residual value available for distribution to shareholders is the resolution of the Group’s outstanding lease commitments, the company stated.
Clouston stated in the event the takeover bid from Mercantile NZ Limited is unsuccessful, once all leases have been assigned and/or surrendered, the company, “will hold mainly cash and have no business activities”.
“Although the directors have not yet made a formal decision, a solvent liquidation process appears to be the most likely method for returning value to shareholders,” he said.
In the 26 weeks period ended February 28, the company closed with a pre-tax profit of $32,000 (last year: $57,000). Shareholders’ funds were $6,916,000 (or $3.37 per share) after the share cancellation on February 26.