Embattled Interserve, a major outsourcing supplier to the government, is facing shareholder challenge as it attempts to put in place a rescue deal to handle its £600m of debt via a debt for equity swap with its lenders which would see other shareholdings very significantly diluted
The company employs 75,000 people worldwide, including 45,000 in the UK, and has been in financial difficulty for some time, in part as a result of pressure on margin in the outsourcing business and expansion into sectors such as waste energy. It is responsible for a number of key government contracts, including cleaning the London Underground.
In a statement, Interserve it has agreed a ‘deleveraging plan’ in principle with all of its lenders, bonding providers and the pension trustee, which it said would ‘place us in a strong position to deliver our strategy, be competitive in the marketplace and provide a secure future for the Interserve Group's employees, customers and suppliers.’
This is expected to reduce its net debt to £275m by issuing £480m of new Interserve equity. However, this new equity will be placed with the company’s existing lenders, who will then hold 97.5%, with ordinary shareholders left with just 2.5% of the equity in the company.
Debbie White, CEO of Interserve, said: ‘The board believes that this agreement will secure a strong future for Interserve. This proposal has been achieved following a long period of intensive negotiation and has the support of our financial stakeholders and government.
‘Its successful implementation is critical to the Interserve Group's future and all of its stakeholders.’
Under the plan RMDK, which is supplier to the construction industry and the most profitable of its businesses, will remain part of the consolidated Interserve Group. As part of the transaction, £350m of existing debt will be allocated to RMDK. Interserve Group excluding RMDK will have a net cash position of £60m.
Interserve says it expects to launch the finalised deleveraging plan in the next few weeks, which will be subject to approval by Interserve's shareholders.
The company noted: ‘Whilst Interserve's objective remains to implement a fully consensual transaction, Interserve is also actively preparing alternative plans to ensure the proposed transaction can be implemented in the event that shareholder approval is not forthcoming.’
Shortly after announcing the plan, Interserve revealed it has received a letter from Coltrane Master Fund, which holds over 5% of the company, requisitioning a general meeting of the company's shareholders.
The requisition notice proposes resolutions that Glyn Barker, Mark Whiteling, Russell King, Anne Fahy, Nick Salmon, Gareth Edwards, Dougie Sutherland and Nicholas Pollard be removed as directors of the company.
Coltrane said it continues to support Debbie White, CEO, of Interserve and the requisition notice does not seek her removal.
The requisition notice proposes resolutions that David C.L. Frauman and Stuart Ross be appointed as directors of the company.
In response, Interserve said it is consulting with its advisers and will update its shareholders with regard to the timing of the general meeting to consider the matters set out in the requisition notice in due course.
This comes only a year after the collapse of Carillion, another major government contractor. Carillion was placed into liquidation on 15 January as last ditch talks to rescue the company failed when banks refused to extend further credit lines to the huge construction company. The outourcer held crisis talks with key financial stakeholders and government representatives, asking for limited short term financial support, to enable it to continue to trade while longer term engagement continued but the talks failed. Therefore the company had to enter into compulsory liquidation with immediate effect, putting at risk 20,000 employees and 24,000 jobs at subcontractors.
Report by Pat Sweet