Phoenix acts to avoid the ashes: Bookshop chain seeks rescue refinancing

PHOENIX, the Penguin bookshop chain that was the subject of a management buyout backed by venture capitalist 3i in 1990, is in urgent talks with investors about a rescue refinancing.

Among those considering pumping money into the company is Terry Maher, the ousted founder of Pentos, the Dillons bookshops to Athena posters group.

Tim Waterstone, who sold his Waterstone's bookshop chain to WH Smith in 1991, is also thought to have been approached. However, he is barred by a non-competition agreement with WH Smith from investing in a rival bookselling chain.

John Hitchin, the Phoenix chairman who led the buyout from Penguin Books, said the company was looking for around pounds 500,000 to get it back on its feet.

A small group of new investors had already expressed serious interest in putting up the money, he said.

He declined to name the individuals involved, but said he expected the matter would be resolved within a fortnight. If the discussions failed, the company could turn to a number of possible alternative investors, he added.

At least one large bookseller is thought to be interested in buying Phoenix outright, but Mr Hitchin is keen to keep the company independent.

Phoenix is owned by its four shareholder-directors, who hold two-thirds of the equity, and 3i, which holds the balance. Current negotiations centre on the new investors taking at least a third of the enlarged company.

Mr Hitchin blamed Phoenix's problems on the fact that a number of the shops it had acquired with the MBO in 1990 had been too small and in the wrong places.

In the year ended July 1992, the most recent period for which figures are available, Phoenix lost pounds 777,000 on a turnover of pounds 4.5m. It had retained losses of more than pounds 1m and net liabilities of pounds 181,000.

Phoenix has cut its losses by around pounds 250,000 a year by reducing the size of its chain from nine shops to five plus two college outlets. The company is still losing money, however, and is short of funds to replace stock. 'We are struggling,' admitted Mr Hitchin.

Next week, Mr Maher will reveal he is to invest in a small publishing company where he will also become non-executive chairman. The company was founded earlier this year and concentrates on nostalgia and local interest books. It is expected to publish 100 titles this year and 200 a year from 1995.

(Photograph omitted)