Conviviality buyers circle as investors mull legal action - reports

Investors in collapsed drinks supplier Conviviality are "considering the possibility" of legal action against the company's board, according to newspaper reports, while buyers circle to buy parts of the business before it is placed in administration.

With director and advisers trying to find buyers before Conviviality is placed in administration in ten days’ time, suitors were reported to include Magners cider maker C&C Group, brewers AB Inbev and Molson Coors and private equity firm Endless.

After the AIM-listed company said last week that it would call in the administrators, The Times says investors are pondering a potential claim that they were misled over the health of the business’s finances, particularly in relation to the £30m fundraising in December at 375p a share to fund the £25m acquisition of 109 stores and 19 franchise rights from the collapsed wholesaler Palmer & Harvey.

The shares were suspended at 101.2p last month after management was surprised by a £30m tax bill on the back of an 8 March profit warning and a failed attempt to raise an emergency £125m.

It was less than two months before that the company had upped its interim dividend and said it was trading in line with the board's full year expectations after a “robust” half-year where revenue and adjusted EBITDA increased but profits slipped in what was blamed on the phasing of cost synergies into the second half of the year.

Chief executive Diane Hunter, who departed in between warnings last month, said at the time that the board had made the "deliberate" choice to focus on growing market share and enhancing future earnings by agreeing long-term contracts with the firm's larger customers, and securing new national account customers.

“These gains in market share coupled with our continued strong sales demonstrates our competitive advantage, the broad customer base we have developed and the robust nature of Conviviality as the UK's leading drinks wholesaler, distributor and solution provider to our customers.

By 8 March, the tune had changed dramatically after the discovery of a "material error" in the financial forecasts of the Conviviality Direct wholesaling business, meaning EBITDA would take a £5.2m hit. Hunter said adjusted EBITDA for the full year was now likely to be around 20% below current market expectations, though assuring there had "has not seen material weakness in overall demand".

A week later, the bad news kept on coming as Hunter cancelled the interim dividend after a £30m tax bill popped up unexpectedly, putting pressure on its banking terms. The HMRC payment had not been recorded in its short-term cash-flow projections.

In better news for Conviviality's creditors, North American brewing giant Molson Coors has shown its interest in acquiring part or all of Conviviality, the Sunday Times reported.