Woolworths widens rescue talks, shares suspended

LONDON (Reuters) - Trading in shares of Woolworths Group Plc WLW.L, the struggling British retailer, were suspended on Wednesday, while talks continued to save the business from collapse.

The 99-year-old group, which still sells more sweets than any other British retailer and has top five positions in toys, children's clothing, homewares and entertainment products, confirmed that it remains in discussions regarding the potential sale of its 800-store retail business to restructuring specialist Hilco UK for a nominal sum.

Woolworths said it was also in talks with the BBC BBC.UL regarding the possible sale of its 40 percent interest in the 2 Entertain DVD publishing joint venture with BBC Worldwide, the broadcaster's commercial arm.

"Whilst discussions in relation to such sales are being pursued with vigor terms have not yet been agreed," the group said in a statement.

"Both sales are subject, amongst other things to the approval of the group's lending banks (Bank of Ireland BOI.L division Burdale and GMAC). Accordingly, there can be no assurance that a sale of the group's retail business or of its interest in 2 Entertain will be concluded."

Woolworths added that pending the outcome of the talks and the consequent impact on the company's financial position it had requested a suspension in the trading of its shares.

A spokeswoman for Woolworths declined to comment further.

However, an executive familiar with the discussions said the BBC has agreed in principle to pay "more than 100 million pounds" ($153.8 million) for Woolworths' 2 Entertain stake.

Woolworths' pension fund is entitled to the first 50 million pounds of any 2 Entertain disposal deal under an agreement struck between the trustees and the Woolworths board when Burdale and GMAC lent the group 385 million pounds in January.

As of August 2 the pension fund had a deficit of 58.2 million pounds.

The sale of both the retail business and the 2 Entertain holding would leave Woolworths with only a profitable entertainment wholesale distribution business.

Hilco's proposal would see it buy Woolworths' retail division for 1 pound and take on about 300 million pounds of the group debt. The balance of the debt would be assumed by the rump business.

If the lenders decide not to approve the sales, analysts expect Woolworths' board will place the entire group into administration, threatening the jobs of 30,000 employees.

Ardeshir Naghshineh, Woolworths' largest shareholder with a 10.2 percent stake, said on Monday the retailer should not be forced into administration but should continue as a going concern.

He outlined a plan to the lenders which would see Woolworths realizing some of its assets through the sale of leases to bring in cash.

A spokesman for Naghshineh declined to comment.

Woolworths shares were suspended at 1.22 pence, valuing the equity at just 18 million pounds.

The group, which demerged from Kingfisher (KGF.L) in 2001, has been struggling for years in the face of growing competition from supermarkets, online retailers and specialist players.

Its problems have been exacerbated in recent months by a rapid downturn in consumer spending, which has forced a string of retailers, including furniture groups MFI and ScS Upholstery, into administration, a form of creditor protection.

In September, Woolworths posted a record first-half underlying pretax loss of 90.8 million pounds on turnover of 1.1 billion pounds and scrapped its dividend.

A spokeswoman for the BBC confirmed that talks with Woolworths regarding 2 Entertain were ongoing and stressed that any deal with BBC Worldwide would not involve license fee payers money. (Reporting by James Davey; Editing by Simon Jessop)