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Caffè Nero

Last Updated on December 7, 2020 by Nick Baskett

Caffè Nero declines offer from billionaire brothers behind EG Group in a bid to save the company’s current financial difficulties.

We previously reported that Caffè Nero is on a brink of insolvency after it was placed into a Company Voluntary Arrangement (CVA). The coffee chain hoped to renegotiate rent agreements to allow the franchise to recover after the pandemic.

Like many retail stores, Caffè Nero, which employs more than 5,000 people in 650 stores, has been badly hit by the reduced footfall in their branches as Britain has endured 2 lockdowns and people continue to work from home.

Mohsin and Zuber Issa, the billionaire brothers behind EG Group, made the offer over the weekend to Caffè Nero’s Chief Executive, Gerry Ford.

The Issa brothers’ EG Group, owns Euro Garages which runs 6,000 petrol stations and and fast food outlets in Europe, the US and Australia, already has brand partnerships with the likes of Starbucks and Burger King.

In September, the brothers and their private equity backers, TDR Capital, secured an agreement with Walmart to buy supermarket chain Asda for £6.8 billion.

Caffè Nero has rejected a takeover bid from EG Group. The offer came hours before the chain was due to seek approval from landlords for a proposal to lower rents on its stores in a company voluntary arrangement (CVA) process.

Under the Issa brothers’ proposal, landlords would be paid in full for the rent arrears owed to them as a result of the COVID-19 crisis. That was said to represent a better deal for them than under the CVA.

The CVA plan would eventually see a number of Caffè Nero stores close and having to let go of staff. The main purpose to switch to a ‘turnover rent model’ which is based on the stores performances.

Caffè Nero gave a rather standoffish response in a statement saying the offer was ‘unsolicited’ for the brand’s parent group.

The coffee chains’ directors believe the bidder’s plan was to “disrupt the CVA process currently under way as a precursor to opportunistically acquiring the company at a later date”.

They said,

Having considered carefully whether progressing with this unsolicited, highly uncertain approach has the potential to achieve a better result for creditors than the CVA as currently proposed, they do not believe this to be the case or to be in the long term interests of the group.

This offer has been made without any understanding of Caffè Nero financial and trading position.

Caffè Nero said, the CVA proposal was designed to put the group “on a sustainable footing for the medium to long term” and provide the company “with the flexibility required for it to withstand the devastating impact of the current pandemic, and any further subsequent lockdowns”.

It added that lenders had indicated their support for the CVA process. The statement concluded,

The lenders are aware of the approach referred to above and have not requested a change in strategy and shareholders have undertaken to reject the offer.

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