City Link strike possible

chewmylegoff

antrobus wrote: »

In the case of City Link "five years of substantial losses".

And can I state the obvious?

Better Capital paid one pound for City Link back in April. Obviously the threat of a strike puts this investment of one pound at risk. No doubt Better Capital is extremely concerned at the prospect of losing this one whole pound, and will be eager to negotiate with the RMT. Or perhaps not.:)

Probably not that straightforward. I expect City Link had significant bank debt when it was sold by Rentokil - that debt would likely have been subject to cross-guarantees (I.e. other Rentokil group companies were on the hook for the debt). That means that the banks will have sought to ensure that the buyer also gave guarantees that the debt would be repaid even if City Link went bust. They may not have had to guarantee the full amount of its debts but it is highly likely they are on the hook for a portion - thus it isn't just a case of losing the £1.

The purchase price of £1 is a strong indication that debts were indeed transferred to the buyer as part of the deal.

antrobus

chewmylegoff wrote: »

Probably not that straightforward. I expect City Link had significant bank debt when it was sold by Rentokil - that debt would likely have been subject to cross-guarantees (I.e. other Rentokil group companies were on the hook for the debt). That means that the banks will have sought to ensure that the buyer also gave guarantees that the debt would be repaid even if City Link went bust. They may not have had to guarantee the full amount of its debts but it is highly likely they are on the hook for a portion - thus it isn't just a case of losing the £1.

The purchase price of £1 is a strong indication that debts were indeed transferred to the buyer as part of the deal.

This is how the City Link deal was reported;

UK parcel carrier City Link has been sold for a token one pound sterling to a private equity investor, after five years of losses. Parent company Rentokil Initial plc said today that the sale of the entire share capital of the Coventry-based company to BECAP12 (Better Capital) has no outstanding conditions, and so takes effect immediately.
http://postandparcel.info/55506/news/companies/city-link-sold-to-equity-group-for-1/

Doesn't look like the deal was conditional on any bank guarantees being given.

Besides, the boys and girls who do private equity are quite well versed in structuring deals that, how shall we put it, 'limits their downside'. Comet was similarly sold for a nominal £2 to OpCapita but later crashed and burned. It doesn't appear that OpCapita suffered any loss as a result.

Henry Jackson is developing a bit of a reputation. The ex-banker and founder of OpCapita, is set to send yet another business he owns into administration, despite being expected to make a profit in the process.
http://www.telegraph.co.uk/finance/comment/9649664/Comet-another-OpCapita-kiss-of-death.html

chewmylegoff

antrobus wrote: »

This is how the City Link deal was reported;

UK parcel carrier City Link has been sold for a token one pound sterling to a private equity investor, after five years of losses. Parent company Rentokil Initial plc said today that the sale of the entire share capital of the Coventry-based company to BECAP12 (Better Capital) has no outstanding conditions, and so takes effect immediately.
http://postandparcel.info/55506/news/companies/city-link-sold-to-equity-group-for-1/

Doesn't look like the deal was conditional on any bank guarantees being given.

Besides, the boys and girls who do private equity are quite well versed in structuring deals that, how shall we put it, 'limits their downside'. Comet was similarly sold for a nominal £2 to OpCapita but later crashed and burned. It doesn't appear that OpCapita suffered any loss as a result.

Henry Jackson is developing a bit of a reputation. The ex-banker and founder of OpCapita, is set to send yet another business he owns into administration, despite being expected to make a profit in the process.
http://www.telegraph.co.uk/finance/comment/9649664/Comet-another-OpCapita-kiss-of-death.html

i don't think the fact that rentokil stated there were no additional conditions and the sale was going through immediately means that the bank debt was not guaranteed by the buyer - it just suggests to me that there were no additional riders (e.g. deferred consideration to be paid by the buyer to rentokil if the business returned to profitability or something like that). there would have been extended negotiations before the sale agreement - the bank would have been a key stakeholder in those negotiations and whatever was agreed would have been agreed in advance of this announcement.

it would be pretty odd to sell the business for £1 if you weren't also transferring its debts with it as the business alone without its liabilities would probably have some goodwill with intrinsic value, and it would be very strange for the bank to release a large group like rentokil from its cross guarantees without securing similar bank guarantees from the new buyer - why would the bank take that sort of risk when there was no need for it to do so.

it's impossible to tell for sure but it would be standard practice for guarantees to be given in this sort of situation.

Thrugelmir

antrobus wrote: »

Besides, the boys and girls who do private equity are quite well versed in structuring deals that, how shall we put it, 'limits their downside'. Comet was similarly sold for a nominal £2 to OpCapita but later crashed and burned. It doesn't appear that OpCapita suffered any loss as a result.

£40 million of investment is being pumped in to the business. So appears that Better Capital saw a future for the business. Investment in new scanning technology is one priority.

grizzly1911

Thrugelmir wrote: »

£40 million of investment is being pumped in to the business. So appears that Better Capital saw a future for the business. Investment in new scanning technology is one priority.

I wonder how much may be being paid in to release encumbered assets?

Thrugelmir

grizzly1911 wrote: »

I wonder how much may be being paid in to release encumbered assets?

2012 saw parcel volume up 20%. So there's a core business there. Just needs to be turned around and put on a profitable footing. The threat of strike action suggests the new management is attempting to tackle old working practices.

antrobus

chewmylegoff wrote: »

....it's impossible to tell for sure but it would be standard practice for guarantees to be given in this sort of situation.

Like I said before, the private equity mob know about limiting the downside. They're not the kind of people who sign a deal that immediately exposes them to a multi million pound liability.

Thrugelmir wrote: »

£40 million of investment is being pumped in to the business. ...

£40 million of investment was announced when the business was sold. Whether or not Better Capital have spent any of that £40 million yet I do not know. They've only had it for 4 months. Give 'em a chance.

Thrugelmir wrote: »

...So appears that Better Capital saw a future for the business. Investment in new scanning technology is one priority.

Well they bought it. I'd guess that did so with at least the intention of turning it around and making a few quid.

grizzly1911

antrobus wrote: »

Like I said before, the private equity mob know about limiting the downside. They're not the kind of people who sign a deal that immediately exposes them to a multi million pound liability.

These types are usually vultures, perhaps Rentokil were the Hyenas.

A token payment is usually in recognition of the liabilities they will take on and I doubt it is a clean parcel. Perhapd they will do MBS on it , cut it dice it, repackage it at make like it is "good".

antrobus wrote: »

Well they bought it. I'd guess that did so with at least the intention of [STRIKE]turning it around and [/STRIKE]making a few quid.

chewmylegoff

antrobus wrote: »

Like I said before, the private equity mob know about limiting the downside. They're not the kind of people who sign a deal that immediately exposes them to a multi million pound liability.

Believe what you like but your theory does assume that the bank and Rentokil are stupid to such an extent that a combination of the two would somehow allow the only upside potential to be sold to some private equity lot for £1 whilst accepting all the downside risk themselves.

It seems more likely to me that they did a deal whereby Rentokil agreed to take some of the bank debt, the bank agreed to vary repayment terms and the PE firm took on some of the debts itself (and obviously continuing obligations like the property leases). You can't just go around buying operations for £1 without accepting risk. If you could then the logical thing would be to shut down and asset strip straight away in order to make an instant return on your £1 investment.

John1993_2

Graham_Devon wrote: »

When we get a delivery from Yodel now a guy in his own car appears with the parcel. I'm assuming he's on some sort of zero hour contract doing his best to earn a living.

Jesus, if the current level of service is Yodel drivers doing "their best", it's hard to imagine what we'd be like if they stepped their efforts down a bit.

They'd have to just throw everything directly in the river to do much worse than at present. To be honest I thought that they only existed to make people think that City Link had something going for them, I never would have imagined they were actually supposed to be a sensible choice for delivery.