Hearings will tell if Musgrave shelved its good values in Superquinn deal

BUSINESS OPINION:MUSGRAVE LOOKS to have been hoisted by its own petard once again. Any organisation that makes high ethical standards a part of its brand had better be ready to live up to them – and Musgrave certainly holds itself out as a cut above the rest.

Consider the following extract from the “our values” section of the corporate website of the Cork-based retailer (www.musgravegroup.com): “We are committed to our values which are about long-term stable relationships, not being greedy, honesty, working hard and achievement.

“We believe there are a number of key characteristics that can give modern family businesses like ours an edge in competitive markets. These include favouring enduring relationships over short-term gain and investing in the long term.

“Family businesses are also able to build a coherent community of committed stakeholders by communicating and ‘living’ their values. As a private business with a firm commitment to remaining an independent family-owned company, these are precisely the qualities that define our enduring partnerships with our retailers, suppliers and our people.”

It’s unlikely that the numerous suppliers left high and dry by the Superquinn receivership would necessarily agree that Musgrave has lived up to these lofty ideals, and the group will have a difficult job of emerging from the coming battle for its rival without looking a little two-faced.

It’s a pity, because it was all going so well. Last Tuesday Musgrave emerged as the white knight that was going to save 3,000 jobs at Superquinn. Two days later it was being cast as a willing or unwilling participant in the shafting of Superquinn’s suppliers. The turnaround followed the decision by shareholders in Superquinn to belatedly seek the appointment of an examiner to the company.

Their case appears to be based – in part at least – on a claim that when they acquiesced to the appointment of a receiver to the company by the banks – Bank of Ireland, AIB, and National Irish Bank, owed a total of €275 million in property-related loans – they thought the suppliers would get a better deal than they did.

According to former chief executive Andrew Street, the banks – two of which are in effect wards of the Irish State – decided to “secure the maximum amount of the sale proceeds for themselves”, while he had hoped a portion of the proceeds would be used to pay suppliers in full.

Street is now reported to be working with the shareholders on getting an examiner put into the company, with court hearings due to take place today.

This puts Musgrave in a tricky position. Its stance really only remains tenable – by the terms of the ethical standards it sets for itself – if it can be shown that receivership was the only viable option for the group.

Even at that, it also has to be able to stand over the treatment of the suppliers by the receiver.

The first challenge is probably the easiest.

We already know that the owners of the business looked at both a trade sale and examinership before going down the receivership route. One would a suspect that it will take more than an attack of conscience on their part to convince the courts that examinership is now worth revisiting. They will have to explain to the courts why the business in now viable.

Standing over the actions of the receiver is much more problematic for Musgrave. The group can argue that it has no control over the receiver and that its support for his actions should not be automatically inferred.

It might also be a mistake to presume that when the deal was done on Monday night, Musgrave nailed down with the receivers how the suppliers would be treated. Given the reported presence of other bidders and the pressurised nature of such deals, it’s quite possible it didn’t. On the other hand, the speed of the deal has the hallmarks of what are known as “pre-packed receiverships” whereby the buyer is lined up for the viable bit of the business before the receiver is appointed and his function is primarily to tidy up the remaining mess of creditors.

This week’s hearing will presumably shed some light on this and Musgrave will be embarrassed or vindicated. If the company is found to have lived up to its worthy ideals it will be a good day for Irish business.

If it does not appear to have achieved the high standards its set for itself on this occasion, it’s not a disaster either.

Something similar happened when the group first moved to buy Budgens in the UK, but Musgrave remains a well-respected business. It might even be a good thing if it decides to be a little less in your face about its values as a consequence.

Ultimately, Musgrave’s ethical contortions are really just an entertaining side show. The real story is that another good Irish business has fallen foul of the property bubble and the tab is being picked up those who were relatively blameless.