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Shares in the UK franchise owner of TGI Fridays plunged more than 90 per cent as it scrapped plans for a £177mn reverse takeover of the American-themed restaurant chain, after the US company lost control of key assets.
UK-based Hostmore, TGI Fridays’ largest global franchisee that is listed in London, said on Monday that the TGI Fridays acquisition was “no longer being actively pursued” after TGI Fridays was removed as the manager of the vehicle that holds the right to collect royalties from the chain.
The removal “compromises the control over the royalty stream of TGI Fridays and also potentially impairs the future revenue of the business”, Hostmore said. “The predictable and highly cash generative royalty stream of TGI Fridays was the primary attractive feature for the Group in pursuing the Acquisition.”
The proposed deal had envisaged that Hostmore, which runs 87 restaurants in the UK, would merge with Dallas-based TGI Fridays to create a larger company that would have remained listed in London.
Shares in Hostmore, which was created after the chain’s former private equity owner spun off the UK operations in London in 2021, fell as much as 93 per cent on Monday morning — pushing the company’s market from around £12mn to only £914,000. They had already fallen by 90 per cent since they were floated.
The abandoned takeover is potentially the final blow to Hostmore, which said last month it planned to adopt an asset-light model and sell its UK restaurants as well as the 92 stores owned by TGI Fridays should the deal go ahead.
It confirmed on Monday that it was proceeding with part of this plan as “several formal bids were received” for the UK stores. But it warned that the money raised from this would be “lower than the par value of the borrowings currently secured by the group’s trading subsidiary” and its board expected that Hostmore would be “wound up and delisted” after the sale, which is set to be completed this month. The franchise for operating the UK restaurants is up for sale.
A strategic review undertaken by the board to evaluate other potential options “confirmed that none of these potential options, individually or collectively, is presently likely to provide value” to the company.
The casual dining sector was one of the biggest corporate casualties of the pandemic with further pressure from inflation and the cost of living crisis. TGI Fridays, which has nearly 600 restaurants across 44 countries including franchises, has shut down many of its restaurants since 2020.
Hostmore’s decision to scrap the acquisition plan comes after TGI Fridays, which is majority owned by TriArtisan Capital Advisors, lost day-to-day control of most of its assets including franchise agreement royalties and revenue from intellectual property.
It was removed as the manager of TGIF Funding, which holds the rights to those assets and is controlled by bondholders as part of a whole-business securitisation, a complex form of financing that is becoming more common among food-and-beverage industry businesses that have a franchising structure.
TGI Fridays began using a whole-business securitisation, which allows companies to issue bonds secured by future cash-generating assets such as royalties paid by franchisees, in 2017.
However, credit-rating agency Kroll Bond Rating Agency said last week that TGI Fridays was no longer TGIF Funding’s manager after failing to file documents to bondholders “within a certain time period”.
Consulting firm FTI Consulting is acting as the back-up manager while TGI Fridays owes $375mn to bondholders, Kroll said, although it has reduced some of this debt by selling retail licensing rights to Kraft Heinz.
