Accountancy firm PricewaterhouseCoopers LLP has been lined up as the preferred insolvency administrator for Phones 4u Ltd. and its subsidiaries, after the private equity-backed cellphone retailer announced it was being forced out of business by the desertion of suppliers EE Ltd. and Vodafone Group plc.
“This decision [by EE and Vodafone not to renew their respective contracts] means that Phones 4u is suddenly in a position where it will be without a mobile network partner when the current contracts expire,” the company said late Sunday, Sept. 14. “The unexpected decisions by both Vodafone and EE have come as a complete shock to the business. The company is in a healthy state and both EE and Vodafone had, until very recently, consistently indicated that they saw Phones 4u as a long-term strategic partner.”
EE’s decision not to renew its contract was not entirely unexpected, since it announced a review earlier this year. But informing the company of the move just days after Vodafone’s Sept. 1 announcement it was severing ties with the retailer, was a devastating blow, as its contract to supply Phones 4u still had a year to run. Between them, the two network operators accounted for more than 90% of Phones 4u’s business.
“In relation to Phones 4u’s statement yesterday, the directors of the company are today seeking to appoint partners and directors from PwC as administrators. No further comment will be made by PwC unless we are appointed by the Court as administrators.” PwC said.
Phosphorus Holdco Ltd., the Phones 4u holding company set up by private equity owners BC Partners Ltd., and Phones 4u Finance plc, the group’s bond issuing arm, said there was now no prospect of avoiding an insolvent liquidation. Phosphorus promised to provide an update on the situation as soon as possible, but said £430 million of 9.5% senior secured notes due 2018 and £205 million of 10% and 10.75% senior PIK toggle notes due 2019 would be affected.
BC Partners’ representative on the boards of the Phones 4u, Stefano Quadrio Curzio, lashed out at the two phone network operators.
“Vodafone has acted in exactly the opposite way to what they had consistently indicated to the management of Phones 4u over more than six months,” he said. “Their behavior appears to have been designed to inflict the maximum damage to their partner of 15 years, giving Phones 4u no time to develop commercial alternatives.
“EE’s decision on Friday is surprising in the context of a contract that has more than a year to run and leaves the board with no alternative but to seek the administrator’s protection in the interests of all its stakeholders.”
The move removes an element of competition from the U.K. market as the networks attempt to squeeze out intermediaries, and may ultimately push up prices to the consumer, Phones 4u said.
Phones 4u said: “Phones 4u is a profitable, well-managed business with 550 standalone stores, employing 5,596 people. The company has a turnover of over £1 billion, Ebitda of £105 million for 2013 and significant cash in the bank.”
The companies hit by the insolvency are Phones 4u Ltd., Life Mobile Ltd., 4u Ltd., Policy Administration Services Ltd., Jump 4u Ltd., MobileServ Ltd., 4u Wi-Fi Ltd., Phosphorus Acquisition Ltd., Phones 4U Group Ltd. and Phones 4U Finance plc.