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Under the Southern Cross

We have seen more than a few high profile business failures over the past year or so, some of which have impacted the public consciousness and others which have barely registered. Woolworths and Oddbins were well liked brands (for nostalgic reasons as much as anything) that disappeared from the high street. We can relate to that more than a busted spanner manufacturer in the midlands say and we can also strongly relate the stranded holidaymakers in Turkey. But will any of these impact in the same way as the probable collapse of Southern Cross?

Naturally there are alarming scenarios of old and frail people being thrown onto the street by heartless IP’s which would be a rather damaging PR exercise for that sector. That is unlikely to happen of course but the fact that could will lead to more calls for regulation in this and similar markets. I think that is a certainty

Southern Cross’s business model was to sell care homes to prospective landlords and then pay (apparently generous) rentals. That presumably generated cash for expansion and it was assumed that the demand would always be there. Not so. Their level of service was seemingly poor and public spending cuts have had their effect.

Now they are effectively giving the landlords a take it or leave it option of two thirds agreed rent for four months. The landlords could presumably hit back and effectively evict, but then where would they find such a seemingly generous tenant?

The unreported danger (as far as i can see) is that some landlords could be too highly geared to live with such a fall in rental. Now that could get messy.

But the overriding concern here must be for the those being cared for. I am all for free markets but sometimes there really have to be certain guarantees and controls and playing fast and loose with a seemingly risky business model whilst having a deep responsibility to the elderly and frail is not going to go unnoticed by the public at large

More background and comment
http://www.guardian.co.uk/business/2011/jun/01/rise-and-fall-of-southern-cross

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Categories: Uncategorized
  1. ron bidwell
    June 1, 2011 at 5:57 pm

    The plight of Southern cross is not surprising. But it is also not as straightforward. Without saying too much that might get me in trouble. If you research what happened to previous finance directors and CEO’s accountants and suchlike you will see that there was a lot of sale and leasebacks going on… Those senior people left and joined another happy band at the group famous for treating the famous and lo and behold….. has the same thing not been going on there also. So is it any wonder that rents grew uncontrollably??? Its worth a little research, you may may be surprised at what you find out.

  2. June 2, 2011 at 9:16 am

    Good to hear from you Ron. Have really only touched on this story so far but as you indicate, I think there is a lot more to come out.

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