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Summary
- The company has rejected an offer from Issa brothers, asking the creditors to help out the solution
- The company said the Issa brothers offer was not suitable for the company and its stakeholders
- The coffee shop chain has also asked for a rent cut after sales dropped due to the pandemic
Petrol station entrepreneurs Mohsin and Zuber Issa’s bid to takeover struggling Caffe Nero in the UK has been turned down by the coffee chain after it said that it would still pursue a restructuring agreement before taking up such an offer.
The ailing coffee chain has run into financial troubles since the pandemic outbreak and has sought a rescue deal with its creditors and has asked its landlords to slash the rent reduction till the business environment improves.
The company runs nearly 650 branded stores and 150 Harris & Hoole coffee shops and was hit in the past few months as footfalls have gone down drastically due to the pandemic. It employs nearly 5,000 people. Experts feel that the chain may see drastic job cuts if the creditor rescue deal comes through and the company is forced to shut a couple of its outlets.
The bid
Issa Brothers, who own the EG group that runs fast food chains and petrol stations across Europe, have a strong financial backing. Recently, they bought a majority stake in Asda with backing from TDR Capital. If their bid was accepted, it could have saved Caffè Nero from closing its outlets and saved a few jobs.
But Caffe Nero reportedly said that the offer was not suitable for the company and its stakeholders.
Issa Brothers are backed by private equity investors who earlier helped it acquire the supermarket chain ASDA for £6.8 billion from Walmart. Even if the rescue deal with the creditors goes through, the company would only be able to borrow some more time till the demand revives back to normal. It can be expected that its operating environment would improve and it can recover.
But the recovery might not come so soon. The chain’s performance is heavily dependent on uncertain market forces. If things continue to remain adverse, the group stands a risk of entering administration.
The British hospitality
The British hospitality sector is one of the worst hit sectors in recent times due to the pandemic. Stringent government safety regulation, lockdowns and people's reluctance to go out has made the industry’s operating environment tough.
Even the government’s ‘Eat out to help out’ programme did not help after the first lockdown was lifted. The second lockdown has only made matters worse. Whatever recovery has been made in the last five months is again at a risk. The government has extended the furloughing scheme, but it may not be enough to save the jobs in the sector.
What’s ahead
The company has initiated a CVA or Company Voluntary Arrangement with its creditors and landlords whereby the company will get an opportunity to reduce its rent and pay back its debts in a time bound manner.
The arrangement could also lead to the possibility of Caffè Nero shutting down some of its outlets and paying back some of its dues and rest being allowed to be paid overtime. The CVA meeting is to take place on December 1 where the fate of the company will be decided. Accounting firm KPMG has been roped in to advise the ailing coffee chain since the second lockdown was put in place in the UK.
