Hostmore shares plummet by 93 percent after failed TGI Fridays deal

The shares of the British franchise company of TGI Fridays experienced a dramatic price drop of over 90 percent after plans for a £177 million buyback were canceled due to the loss of control over key assets. Hostmore, the largest global franchisee of TGI Fridays based in London, announced on Monday that the buyback plans are "no longer being actively pursued" after TGI Fridays was removed as the manager of the vehicle that holds the rights to collect royalties. The removal compromises the control over TGI Fridays' royalty stream, potentially impacting the company's future revenues, according to Hostmore. The predictable and highly revenue-generating royalty stream of TGI Fridays was the main feature that prompted the group to pursue the buyback. The planned deal envisioned Hostmore, which operates 87 restaurants in the United Kingdom, merging with Dallas-based TGI Fridays to create a larger company that would remain listed in London. Shares of Hostmore, which was brought to the London Stock Exchange in 2021 following the spin-off of its UK operations by its former private equity owner, fell by up to 93 percent on Monday morning, reducing the company's market value from around £12 million to just £914,000. The shares had already dropped by 90 percent since the IPO. The failed buyback could spell the end for Hostmore, after the company announced last month that it would adopt an "asset-light" model and sell its UK restaurants along with the 92 TGI Fridays stores if the deal went through. On Monday, Hostmore confirmed that it would proceed with parts of this plan after receiving "several formal offers" for the UK stores. However, the company warned that the sums raised "are likely to be below the face value of the liabilities currently secured by the trading subsidiary," and the board expects to have to "wind down and delist" Hostmore after the divestiture. A strategic review by the board concluded that none of the other potential options would likely provide value for the company. Hostmore's decision to abandon the buyback plan follows the loss of operational control at TGI Fridays, which is majority-owned by TriArtisan Capital Advisors. Consulting firm FTI Consulting is acting as a backup manager, while TGI Fridays still owes creditors $375 million. Part of this debt was reduced by selling retail licensing rights to Kraft Heinz. Since 2017, TGI Fridays has been utilizing "Whole-Business Securitisation," a complex form of financing that allows companies to issue bonds secured by future cash-generating assets such as royalties. Last week, the credit rating agency Kroll Bond Rating Agency announced that TGI Fridays is no longer the manager of TGIF Funding after failing to submit documents to creditors within a specified time frame.