Vacuum cleaner chain Godfreys has told shareholders to accept a takeover bid made by the company's 99-year-old co-founder after suffering a devastating 27 per cent fall in sales in the past two weeks.
John Johnston already owns 28 per cent of Godfreys.
John Johnston, who joined Godfreys as a partner in 1936 and owns 28 per cent of the company, lobbed a 32¢ a share bid for the stock he does not already own in early April.
Godfreys floated on the ASX at $2.75 per share in 2014 but has been hammered by competition from the likes of JB Hi-Fi and Harvey Norman.
The company, which has about 220 stores across the Australia and New Zealand, on Wednesday said that its independent directors had reviewed the offer and recommended that shareholders accept Mr Johnston's offer.
Godfreys' chairman Brendan Fleiter said a takeover was the best option considering the uncertain outcome of the business' turnaround plan, and the fact it was on track to breach its covenants on a $30 million debt owed to Mr Johnston.
"While good progress has been made... there is no guarantee as to the benefits that the
turnaround strategy will realise, nor the time required to realise these benefits," Mr Fleiter said.
Godfreys says shareholders should accept the offer. Credit: Rob Carew
While Mr Johnston had agreed to waive the fixed cover charge ratio covenant on its debt, which Godfreys expects to breach, the waiver was on the condition that the company held "negotiations" with Mr Johnston about "debt reduction strategies" no later than this Friday.
That would include possibly swapping the debt for greater ownership of the company, Mr Fleiter said.
Godfreys said on Wednesday it expected to breach its leverage and fixed cover ratio covenants due to thumping 27 per cent fall in comparable sales in the past two weeks.
This came after an already poor April, and contributed to an 8 per cent fall in comparable sales for the year to date.
The company blamed this on changing its television advertising in April and May from being focused on discounts and sales to focusing on product features. This did not work, and it has since reverted to the old ads, Godfreys said.
Old commercials, such as this one, focused on discounts and sales as opposed to product features.
Underlying earnings for the full financial year would come in at about $3.5 million, or possibly worse if sales deteriorated further.
Godfreys reported a $58.6 million bottom line half-year loss, driven by a $75 million write down. It reported a full year loss of $18.4 million in 2017.
Godfreys' shares were down 1.6 per cent at 29.5¢ by midday.