Backers dropped Chappell over BHS pension liabilities

The investment bankers working with the ex-bankrupt whose consortium bought BHS for £1 dropped him in the run-up to the deal after they discovered that the department store chain’s new owner would be saddled with its pension liabilities.

Retail tycoon Sir Philip Green sold the chain to Retail Acquisitions, which was led by Dominic Chappell, who had no retail experience, in 2015.

MPs are investigating both the sale and the chain’s subsequent collapse in April. Its failure left behind a pension deficit that has been handed on to the UK’s pension rescue fund at an estimated cost of £275 million.

Joseph Dryer, head of capital markets and advisory at RiverRock, told MPs yesterday that his investment bank had begun advising Mr Chappell and Retail Acquisitions in December 2014, after the former racing car driver said he had struck an agreement with Sir Philip.

“Mr Chappell advised not only us but his other advisers, and obviously his board, that the deal was he would be acquiring BHS for £1, that it would be coming to him debt free and that it would be coming to him pension free,” Mr Dryer said.

Mr Chappell had repeatedly told RiverRock that BHS’s pension liability “would be completely covered” by Sir Philip and his Arcadia group before the sale, Mr Dryer said. He added that RiverRock had stopped working with Mr Chappell after Goldman Sachs, which was acting as a “gatekeeper” on behalf of Sir Philip, told the smaller investment bank no such agreement had been reached.

“There were a number of fundamentals that were invalid, namely the pension fund liability,” Mr Dryer said, adding there had been a “misapprehension” between Mr Chappell and Sir Philip.

He said Mr Chappell had been “quite surprised” by the news.

“Up to that point, there was no question . . . in my mind that he felt very strongly that he had struck a deal, and he managed to convince us and all of his other advisers that was the basis under which we were being engaged,” Mr Dryer said.

The deal Retail Acquisitions eventually clinched with Arcadia in March 2015 required Mr Chappell’s consortium to take on the pension liabilities.

Goldman had ceased providing informal help to Arcadia about a month earlier.

Executives working for Arcadia have said they were convinced of Mr Chappell’s credibility by his ability to deposit £35 million in an escrow account at short notice.

MPs have written to Guy and Alexander Dellal, the property investors who put up that money, to ask about the circumstances surrounding the advance - but have yet to publish a reply to their inquiries.

Mr Chappell and board members from Retail Acquisitions are set to face questions from MPs today.

– Copyright The Financial Times Limited 2016