Hostmore abandons pursuit of TGI Fridays, shares tumble

9th Sep 2024 09:24

(Sharecast News) - Hostmore tumbled on Monday as the restaurant operator said it was abandoning its pursuit of TGI Fridays after it lost an important revenue stream.

It pointed to the fact that the trustee of TGI Fridays' corporate securitisation has terminated it as the manager of TGIF Funding, 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," Hostmore explained.

"The predictable and highly cash generative royalty stream of TGI Fridays was the primary attractive feature for the group in pursuing the acquisition."

Hostmore said it expects the company will be wound up and delisted, with TGI Fridays continuing its operations in the UK under new ownership.

At 0920 BST, the shares were down 90% at 0.88p.

Russ Mould, investment director at AJ Bell, said: "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.

"Arguably one of the most tired dining brands on the market, TGI Friday's is a name that now has more connotations with 'remember the days' nostalgia TV shows looking at past lives, rather than something that still holds its own against a growing number of modern chains.

"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.

"A deal to sell Hostmore's corporate stores has also taken a turn for the worse. While the transaction is expected to proceed, the value of the stores is now expected to be less than the value of the secured debt.

"It's effectively game over for Hostmore as a listed business, with the board saying the company will be wound up and delisted."