It’s A No From Nero: Caffe Nero rejects takeover bid
December 16, 2020
3 min read
What's going on here?
Struggling cafe chain Caffe Nero has rejected a last-minute takeover bid by EG Group.
What does this mean?
Cafe Nero is one of Britain’s biggest coffee shop chains with around 800 cafes and more than 6,000 employees in the UK. The chain has been struggling in the wake of the recent pandemic after forced store closures, and a reduction in commuters. In September the cafe appointed KPMG to help it negotiate rent cuts, and the landlords will vote on a company voluntary arrangement (CVA) – a type of insolvency which would allow them to continue trading while they came to a financial arrangement with their creditors.
This vote was due to take place on Monday 30 November, however, before the vote, EG Group made a last-minute bid to buy Cafe Nero from its founder and majority shareholder Gerry Ford. EG Group had proposed to pay the full rent owed to Cafe Nero’s landlords.
The bid was rejected on the basis that the Group did not understand Cafe Nero’s financial situation or trading position and that the bids’ intention seemed to be to disrupt the CVA process in order to acquire the company at a later date.
What's the big picture effect?
The news seems to be reflective of the current economic climate, which has seen firms’ insolvency and M&A departments thriving. While M&A initially took a hit early on in the pandemic due to uncertainty, there is now a backlog to work through and the rise in insolvent businesses has created a further rise in acquisitions by buyers who are less impacted by the pandemic or see the opportunity it presents.
EG Group is one such buyer, and this is their latest move to expand their business interests which originally centred on petroleum. In October they took over ASDA from Walmart for 6.8bn GBP in a deal with private equity partner TDR Capital (read our article on that here). Despite the rejection of the bid, EG Group founders continue to grow their reputation as successful entrepreneurs whose portfolio employs over 44,000 people across three continents.
The CVA, which was approved by the overwhelming majority of creditors including landlords on Tuesday, will see a number of the Cafes closed, while the remainder would switch to a turnover rent model which links the rental payments to the sales made. The approval by landlords should not come as a surprise, as in the current climate they are not likely to find other full rent-paying tenants, and would prefer reduced rental payments over no rental payments. With this in mind, on the face of it EG Group’s bid, with the agreement to pay full rental arrears would appear to have been the better deal for the landlords, but they did not believe it to be in the long term interests of the cafe group. The CVA on the other hand is designed to put the group on a sustainable path in order to survive the impact of the pandemic. To landlords, therefore this may have been a choice between short term gain versus delayed long term gain. However they appear to have hedged their bets, as the terms of the CVA were reportedly tweaked as a result of the bid, and now include a term to the effect that any purchaser of the cafe group would need to pay full arrears of rent to the landlords. Thus the doors to a takeover have not been completely closed.
Report written by Julie Lawford
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