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Hostmore (LSE:MORE) experienced a dramatic drop in share value on Monday, following its announcement that it was abandoning its pursuit of TGI Fridays due to the loss of a critical revenue stream. The company cited the termination of its role as manager of TGIF Funding by the trustee of TGI Fridays' corporate securitisation as a major factor in this decision. TGIF Funding, which holds legal title to franchise agreement royalties and various fees and revenue related to the TGI Fridays business, is central to the franchise's financial structure.
Hostmore highlighted that the termination compromised its control over the lucrative royalty stream from TGI Fridays and potentially undermined future revenue prospects. The royalty stream, which was a key attraction in pursuing the acquisition, was seen as a predictable and highly cash-generative feature of the business.
In light of these developments, Hostmore anticipates that it will be wound up and delisted, with TGI Fridays continuing operations in the UK under new ownership. At 0920 BST, Hostmore's shares plummeted by 90%, trading at 0.88p.
Russ Mould, investment director at AJ Bell, commented on the situation, noting that the company's share price collapse reflects the severe impact of the failed expansion plan. The acquisition of the global master franchise for TGI Fridays was intended to significantly enhance Hostmore's scale and presence in the US while also freeing the company from restrictive existing franchise agreements.
However, with the loss of control over the essential royalty stream, the acquisition's appeal diminished substantially. Mould pointed out that TGI Fridays, once a prominent dining brand, now carries more nostalgia value rather than competitive strength against newer market entrants.
Additionally, the anticipated sale of Hostmore’s corporate stores has encountered difficulties. While the transaction is still expected to proceed, the value of the stores is projected to fall below the value of the secured debt.
Given these setbacks, Hostmore's board has indicated that the company will be wound up and delisted. The substantial drop in share price and the termination of the acquisition plan underscore the severe challenges facing Hostmore as a listed entity.
