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Listed vacuum cleaner sales business Godfreys (ASX: GFY) has recommended shareholders accept the takeover deal by its 99-year-old co-founder as the business is at risk of defaulting on loans.
In a statement to the ASX on Wednesday, Godfreys recommended that shareholders accept the offer made by its co-founder John Johnston, now the director of Arcade Finance, to take back controil of the struggling business.
This recommendation follows admissions from Godfreys that it is currently at risk of defaulting on loans and breaching two lending covenants.
Godfreys has struggle with sales throughout 2018.
In the two weeks since its latest trading update on 23 April 2018, like for like sales have reduced 27 per cent compared to the same time last year.
The company attributes this decline in sales to changes made to its television advertising campaigns in April and May.
The decline in sales revenue has hit Godfreys hard and is expected to have a material impact on the company's April and May result, as well as its earnings for the remainder of FY18.
The company now expects earnings for FY18 to be approximately $3.5 million. If sales continue to decline, the result could be even lower.
Godfreys believes it is likely that the company will breach both the Leverage Ratio covenant and the Fixed Cover Charge Ratio covenant under the Facility Agreement.
"Given its current trading performance, Godfreys currently believes it will be difficult to satisfy the Facility Agreement's covenant requirements as at 28 December 2018, being the next testing date," says Godfreys.
The takeover deal proposed by John Johnston will see Arcade Finance purchase all of Godfreys shares for $0.32 cash per share.
Johnston's main recovery plan is to take the business off the ASX.
"Arcade believes the restructuring required to restore Godfreys' value would be best carried out in an unlisted private company environment," says Johnston.
"Therefore, Arcade proposes to remove Godfreys from the ASX official list upon acquisition."
Arcade Finance is currently Godfreys largest shareholder, owning 28.09 per cent of all Godfreys' issued shares.
Johnston is the former business partner of Godfrey Cohen who established the Godfrey Group in 1931 during the great depression.
The partnership between Cohen and Johnston lasted more than 70 years and Godfreys has now grown to almost 200 stores across Australia and New Zealand.
It is reported that a successful takeover is not expected to result in the closures of any Godfreys stores, nor result in job losses.
The offer from Arcade Finance will close at 7pm Adelaide time on 24 May.
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