Lindex Group: Lindex loses district court in restructuring dispute

Translation: Original published in Finnish on 11/29/2024 at 3:46 pm EET.

The Länsi-Uusimaa District Court on Friday upheld an earlier arbitration court ruling that the company should pay 16 MEUR "additional compensation" to LähiTapiola in the last outstanding restructuring dispute. However, we believe that Lindex's loss in court opens up the possibility that the restructuring will be terminated if the company itself decides to settle for this solution.

Restructuring-related lawsuits open up possibility to end the process

Lindex has only one disputed debt remaining from the restructuring. In this context, the District Court decided on Friday to uphold an earlier arbitration decision which ordered Lindex to pay a total of 19 MEUR to LähiTapiola for the termination of the lease. Of this amount, just over 3 MEUR has already been paid and the remaining 16 MEUR has been recorded as a provision in Lindex' results but has not yet been paid. However, the payment is factored into our forecasts.

Although this decision is still subject to appeal, we believe it to be significant as there is a possibility that Lindex will accept the district court's decision in order to complete the restructuring process. The restructuring supervisor must also approve the solution, so it is not entirely in the hands of the company. After this decision, it is unlikely that LähiTapiola will have much appetite for an amicable settlement, as it is strong in court, at least on the basis of the decision. If the decision is further appealed, the case will continue in the Court of Appeals, which could take another year or so. This would hardly be a desirable solution for Lindex.

Results of the strategic review promised later this year, which should be facilitated by the resolution of restructuring disputes

The company announced over a year ago that it would launch a strategic review of its department store business, the Stockmann division. In practice, we believe the review means that the process of selling department stores is in progress. The results of this review are expected to be announced later this year. The timing may be partly related to the above dispute, i.e. Lindex may want to wait until the end of the restructuring process is in sight before publishing the results of the strategic review. If Lindex is satisfied with the aforementioned court decision, it would also allow the strategic review to proceed/results to be published before the end of this year. In addition to the restructuring timeline, the main question is likely to be whether Lindex can find a buyer/taker for the department stores on terms suitable for Lindex. We believe the company will announce the divestment of the department stores in the coming months, which should have a clear positive impact on the stock. However, we think that the ultimate outcome of the review may be delayed until early next year, as this year is already running out of days.