Oasis urges Restaurant Group to take action to restore market confidence

Restaurant Group hit back on Thursday after hedge fund Oasis Management said the Wagamama owner needed to take "immediate steps to restore market confidence" following the decline in the share price.

In an open letter, Oasis, which owns a 6.5% stake in the company, said TRG needs to communicate its strategic direction to the market.

The Hong Kong-based hedge fund called on TRG's board to "urgently re-align" its priorities. It said it had conveyed this message to the board privately but decided to go public after being "rejected out of hand".

Oasis said it firmly believes in the underlying value potential of the company’s core brands - which include Frankie & Benny’s, Chiquito and Brunning & Price, among others - and emphasised its long-term commitment to the group.

However, it noted that despite the "considerable value" of these assets, TRG has one of the worst-performing share prices of any UK leisure company, materially worse than its closest peers, and "disproportionately worse than what the impact of the challenging sector backdrop would alone justify".

"The poor shareholder experience of this long-term decline in market value is further exacerbated when taking into account the company’s three equity raises since 2018, with proceeds totalling £547m," it said.

Oasis pointed out that since the close of the latest of these rounds in March 2021, the share price has dropped around 65%, reducing the company’s market capitalisation to around £265m, just half of the combined proceeds raised.

Since the close of the first raise in 2018, used to fund the acquisition of Wagamama, the share price has plummeted around 70%, it added.

Oasis put the share price decline down to group level decision-making and failure of oversight "by a board that has lost focus on long-term value creation and its alignment with the shareholder perspective".

"Oasis considers that the board’s approach has caused strategic stagnation and the deterioration of standards in market communication, resulting in a continuing and prolonged period of relative share price underperformance," it said.

It continued: "We implore the board to urgently discuss with its shareholders the necessity for meaningful, immediate and near-term governance change at TRG to promote alignment with the shareholder perspective.

"Oasis expects that a process should be conducted separately from the scheduled annual outreach which seeks support for general meeting items and held independently of management to allow shareholders to provide meaningful input on the future composition of the board."

TRG issued its own statement on Thursday afternoon. In response to Oasis saying it had been engaging with the company for several years, TRG said its chairman met Oasis face-to-face for the first time in December 2022.

At the time, the hedge fund requested a seat on the board and a strategic review by an independent bank.

"This request was made without Oasis giving indication of strategic ideas that should be examined by the board," TRG said.

"The board was already, and continues to, review the group's strategic options. The board concluded that this review should not be disrupted by Oasis' suggestion of an additional process.

"The board therefore decided it would not be in the interest of our other shareholders to grant Oasis a board seat."

TRG also addressed Oasis’ comments about the share price decline.

"The Covid global health pandemic and the current cost-of-living crisis have created huge challenges for the UK Hospitality industry and this has been reflected in TRG's share price," it said. "However swift and decisive management actions taken during Covid were viewed as having successfully guided TRG through an extremely challenging period."

It said the group’s operational performance since Covid has been "strong" compared to the wider UK casual dining sector, with Wagamama continuing to trade "extremely well" over the past three years and the pubs business delivering "exceptional" market outperformance on sales.