Why Ellies failed and what its future holds

If a plan to sell Ellies’ retail import and distribution business is approved, the brand will continue to exist.

This was the feedback from Ellies Electronics CEO Shaun Prithivirajh on what the future holds for the company.

Ellies entered voluntary business rescue on 31 January 2024 after its proposed acquisition of alternative energy company Bundu Power fell through.

In April, business rescue practitioner John Evans said there was no reasonable prospect of rescuing Ellies Holdings and that the company would be liquidated.

Subsidiary Ellies Electronics has continued trading, and Evans said several suitors had already approached them to acquire Ellies’ operating divisions.

“The published business rescue plan contemplates the sale of the Ellies retail import and distribution business,” Prithivirajh told MyBroadband.

“If the business rescue plan is adopted and the sale finalised, many jobs will be saved and Ellies branded products will continue to be sold in retailers across the country.”

Prithivirajh said they all sincerely hope creditors will approve the proposed business rescue plan.

Asked what went wrong that landed Ellies in this situation, Prithivirajh said there were several factors that contributed to the company’s financial distress.

This included the emergence and prevalence of streaming services, which contributed to a rapid decline in TV satellite sales and services.

Ellies was founded in 1979 by Ellie Salkow in Johannesburg as a supplier of television aerials.

With the advent of DStv, it began selling satellite dish antennas and became a major supplier of MultiChoice’s hardware products.

As DStv’s subscriber numbers stagnated and began to decline in South Africa, this part of Ellies’ business also suffered.

Prithivirajh said they also made a significant investment in solar power products and inventory at a time when load-shedding was peaking and prices were high.

“The change in market dynamics, being an oversupply and reduction in demand, saw significant price reductions in the solar power industry making it both difficult to achieve profits and convert this inventory back into cash,” he said.

Prithivirajh said these issues caused cash flow constraints, followed by Ellies’ bankers withdrawing their support.

This caused its proposed acquisition of Bundu Power to fail, leading to the voluntary business rescue and liquidation.

Ellies first announced the deal on 1 February 2023, with the initial plan of raising the necessary capital from shareholders through a rights offer.

At the time of the rights offer, Ellies’ shares were trading at 11 cents.

Ellies said it would allow shareholders to buy 2.13 additional shares for every share they owned for 7 cents. It aimed to secure R120 million.

However, its share price subsequently collapsed to less than the rights offer price.

With the proposal losing its appeal, Ellies cancelled the rights offer in December and said it would instead finance the deal with debt.

However, the debt would be over five times its market capitalisation and more than its net debt of about R183 million at the end of its last financial year.

Ellies had also been struggling financially, posting a comprehensive loss of R85 million during the year.

This led to the banks refusing to loan Ellies the money to buy Bundu Power, stopping its Hail Mary deal dead in its tracks.