A fund manager friend phones in need of a stiff drink. He’s just been in to see brokers trying to scramble £130 million of rescue cash for Bargain Booze owner Conviviality.
You’ll recall that this is the retail and distribution business that suddenly discovered a £30 million tax bill it couldn’t afford. Don’t you hate it when that happens?
The shares, tipped by one eminent investment mag a couple of weeks back at 305p (ouch), fell to 120p and were suspended at 102p.
My man was invited in by Investec to hear their spiel about why he should buy into a rescue share issue at… wait for it… 10p.
His response was still a resounding “no”. To him, even with CEO Diana Hunter out of the picture, this is a booze and fags retailer with Rizla-thin management capabilities.
The chief executive quit yesterday, and chairman David Adams stepped up temporarily. My guy rather cruelly summarises his CV as: “House of Fraser, Jessops, JJB: hardly confidence boosters.”
In fairness, Adams specialises in going into already damaged businesses, so it’s rather unfair to condemn him for it, but I’m told potential investors want him to follow Hunter out of the door as soon as a replacement is found.
Also, the newish finance director, in place for now, is the chap who failed to spot the tax bill. A man with such a good grip on the numbers that he bought 120,000 shares with his own money on Friday 9th, just one working day before the tax crisis announcement. So, no non-exec chairman, no permanent CEO and an FD of questionable competence.
That absence of management is why my man fears there’s not enough worth saving. Banks (largely Barclays, HSBC and RBS) are owed £150 million at a company whose equity is worth little more than a tenth of that. They’re in charge here.
There’s an alternative view. Those close to the process say its advisers at PwC are not considering putting it into administration as some have speculated.
They say there’s plenty of interest in the fundraiser, and are confident of positive news in the coming days. I doubt they’d spin such a story without substance.
Meanwhile, there’s been some takeover interest in the Matthew Clark distribution arm for which Conviviality paid £200 million in 2015. Other parts of the business seem operationally healthy too.
For my money though, if you wanted to back a corporate refinancing, there are safer offers.
Capita, soon to raise £700 million in a rights issue, may have lost its way in a takeover frenzy, but strong new management is cutting costs and making disposals to reinvest in its core government, software and HR arms. Its strategy day today will see directors approve the plan.
Decent management, and a sustainable flow of high-value contracts; a cocktail that shouldn’t leave you with a Bargain Booze hangover.