Interserve to go into administration as rescue deal blocked

At extraordinary general meeting on Friday, 59.38% of shareholders voted against the board's debt-for-equity proposal, which needed the support of more than 50% to be passed. Votes were only submitted by shareholders representing 90.2m out of the 161.27m shares in issue.

PRE-PACK ADMINISTRATION

Interserve is expected to call in the administrators EY on Friday, where a 'pre-pack' deal is planned where the entire business and assets will immediately be sold to a newly formed company owned by its existing lenders, a small group of banks and hedge funds, leaving shareholders with nothing.

This pre-pack process will allow it to avoid a Carillion-style collapse and enable the business to carry out its government contracts, which range from road building to supplying school dinners and operating the probation service.

The company said the group's 65,000 employees, including the beneficiaries of the group's pension schemes, would be protected by the deal. Around 45,000 of Interserve's staff work in the UK.

Completion of the sale of the group to the new company, will release roughly £815m in principal amount of secured debt owed to the group's lenders and £202m of contingent secured liabilities owed to bondholders, with the exchange of around £485m of existing debt facilities for ordinary shares in the new company and the provision of an £110m of additional liquidity to the group.

However, under the alternative deleveraging transaction, shareholders "are not expected to receive any value for their shareholding," Interserve noted.

On Friday, shares in the company were suspended from trading with immediate effect at 1235 GMT, but not before they had fallen 34% to 6.3p. They were as high as 500p five years ago.

The Cabinet Office said the pre-pack deal will not affect jobs or the provision of public services delivered by the company. "We are in close contact with the company and we are confident a positive way forward will be found."

COLTRANE'S NEXT STEPS

One vocal opponent of the deal has been Interserve's largest shareholder Coltrane, a US hedge fund that owned a stake of 25.7% at the time of the vote, having trimmed it from 27.69% on Thursday.

One Coltrane representative attended the meeting and when asked to comment, said: 'I voted for Trump'."

Coltrane Asset Management, US hedge fund opposing Interserve deleveraging plan, sat at back right of the room, refused to comment at the end beyond provocatively saying: “I voted for Trump.”

— Alex Ralph (@alexralph) March 15, 2019

A representative of Interserve's largest shareholder Coltrane was just asked how they voted in the financial restructuring of the company. He said: "I voted for Donald Trump." Pretty flippant when jobs and people's investments are at stake.

— Rob Davies (@ByRobDavies) March 15, 2019

The board had planned to swap much of its £631m debt for new shares, which would have resulted in 95% of the business being owned by its lenders, with existing shareholders such as Coltrane and many retail investors left with 5% of the highly diluted equity. Interserve had been looking to raise around £435.2m through the offer.

Not happy with the proposed deal, Coltrane last month called for an extraordinary general meeting where it proposed removing Interserve's chairman, finance director and most of the rest of the board in an effort to derail the plan.

The US firm has indicated that if Interserve went into administration it would seek to cherry-pick parts of the business to buy, the Guardian reported.

WORKFORCE CONCERNS

But even though the pre-pack process is expected to avoid a total collapse like Carillion, trade unions representing many of the UK workforce raised concerns, calling for the government to step in and ensure that services continue and that workers are treated properly.

Colenzo Jarrett-Thorpe, national officer at the Unite union, which represents more than 1,700 Interserve workers, said: “The workforce are the innocent victims of the greed and incompetence of Interserve’s senior management, it should be the management who are fearful of their future and not the workers, who are blameless.

“Interserve’s management has portrayed this as business as normal but this is anything but normal. Workers are being asked to deliver vital public services without knowing who their employer will be and whether they will continue to have a job in the future."

After the collapse of Carillion last year, she said this was further evidence that the government’s model of heavily relianceon outsourcers has failed.

“Interserve is the latest example of bandit capitalism and this demonstrates that the government’s outsourcing business model is smashed beyond repair.

“The government has been asleep at the wheel since Carillion’s collapse last year and if no action is taken we face further corporate collapses.”

The Federation of Small Business highlighted the worries of the company's suppliers, some of which would have also been hit by Carillion. “The collapse of Interserve highlights once again the dangers of relying on a handful of outsourcing giants. At a time when political uncertainty is weighing heavily on small business confidence, this development will spark further fears across its supply chain," a FSB spokesperson said.

Labour MP Jon Trickett, shadow Cabinet Office minister, said "It's crucial that Interserve’s administrators don't simply strip the profits in favour of shareholders & leave the taxpayer to pick up the bill for the rest. The public purse should not be burdened with these failures"