Shareholders in the company which runs the TGI Fridays cocktail bar chain in the UK face the prospect of losing their investments after it scrapped plans to take over the owner of the brand in the US, and revealed that efforts to find a buyer for its stores here are “unlikely… to recover any meaningful value for its ownership”.
Shares in Hostmore collapsed by 90% after it told the stock market that it has walked away from its £177 million approach from TGI Fridays Inc across the Atlantic, after learning that the “royalty stream” arising from the deal would be lower than previously anticipated.
The company, which has around 90 outlets in the UK, had previously said in August that the proposed deal would be delayed.
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The US deal was scrapped as the company also revealed that a process to sell its properties in the UK, to reduce net debt and move to a capital-light model, had attracted several formal bids. However, it noted that “present indications from the leading bids are that the consideration for the store sale will be lower than the par value of the borrowings secured by the group’s trading subsidiary, Thursdays (UK) Limited. Accordingly, it is unlikely that the equity owner of Thursdays, being the company, will recover any meaningful value for its ownership”.
Hostmore added: “The sale process is expected to complete in late September; however, Thursdays continues to operate normally, and all existing stores remain open.
“It is the board's present expectation that the company (Hostmore plc), being the listed non-trading holding company of Thursdays, will be wound up and delisted contemporaneous with the conclusion of the sale process, as TGI Fridays in the UK will continue its operations under new ownership.”
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Russ Mould, senior investment director at AJ Bell, said: “It’s an awful start to the week for restaurant group Hostmore... The company’s share price crashed 90% after an expansion plan went up in smoke, implying there is little to no value left in the listed business for shareholders.
“Having operated under the TGI Friday’s brand in the UK for some time, Hostmore had been trying to buy the global master franchise owner. It was a bold deal from the start, given how Hostmore has struggled as a listed company from the outset.
“The acquisition would have significantly increased Hostmore’s scale and given it a big presence in the US. It would also have released Hostmore from the shackles of an existing franchise deal which is described as restrictive.
“Unfortunately, the acquisition has been scrapped after the UK group was removed as the manager of TGIF Funding, which owns the right to collect royalties from the TGI Friday’s restaurant franchise. Without control over the royalty stream, the acquisition becomes significantly less appealing."
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Hostmore said a separate strategic review to evaluate other potential options to “secure value” for the group is complete. But the review “confirmed that none of these potential options, individually or collectively, is presently likely to provide value to the group. However, the board will continue to actively explore other potential options in response to events and will proactively pursue any opportunities that become available”.
Hostmore set out in a statement the rationale behind its decision to walk away from its proposed acquisition of TGI Fridays Inc across the Atlantic. The company said it has “now confirmed with TGI Fridays (Inc) that the trustee of TGI Fridays' corporate securitisation terminated TGI Fridays as the manager of TGIF Funding LLC which is the company subject to the corporate securitisation.
“TGIF Funding holds legal title to the franchise agreement royalties and other various fees and revenue from intellectual property of the TGI Fridays business. While TGI Fridays remains the owner of the residual interest in TGI Funding, the termination compromises the control over the royalty stream of TGI Fridays and also potentially impairs the future revenue of the business. The predictable and highly cash generative royalty stream of TGI Fridays was the primary attractive feature for the group in pursuing the acquisition.
“Following the termination, the acquisition is no longer being actively pursued. However, TGI Fridays and the group agree that each is open to re-engaging discussions if circumstances warrant."
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On trading, Hostmore reiterated the update provided on August 6, when it said sales for the first three weeks of July had declined by 23% on a like-for-like basis compared with the same period of 2023. It noted the same factors affecting the sector in July had continued into August, namely persistent warmer weather than the corresponding period in 2023, and underlying weak consumer spending.
Hostmore added that like-for-like sales for the year to date remain 12% down the same period in 2023, with August performing better than July and the first two trading weeks of September showing further improvement; like-for-like sales are down around 9% compared to the same period in 2023.
Shares in Hostmore closed down 90.84%, or 8.63p, at 0.87p.
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