Wagamama’s Takeover Could Be in Doubt After Investors Sound Alarm

Wagamama’s future ownership could be in doubt, after investors at The Restaurant Group (TRG) baulked at the details of a proposed £559 million acquisition, as reported by MCA.

Describing the proposed purchase as “overly risky and expensive,” two American-based shareholders in TRG — Grizzly Rock Capital and Vivaldi Asset Management — have urged the board to pay the “nominal fee” of £6 million to pull out of the deal. They say that if completed, the acquisition could cause the share price of the company — and thus shareholder value — to plummet. It has already declined by 30 percent since the deal was announced in October.

The investors claim that “significant” debt incurred by TRG in any takeover means the overall deal is much less attractive. They also accused management of overlooking this risk in their calculations.

However, Institutional Shareholder Services (ISS) — “the world’s leading provider of corporate governance and responsible investment (RI) solutions” — yesterday offered those in support of the takeover a boost, according to the Telegraph. It recommended investors support the acquisition, adding that there was “strong strategic rationale” for buying the chain of restaurants.

Earlier this week, Kyle Mowery, representing both Grizzly Rock and Vivaldi, said that management had miscalculated the “cost of capital,” and failed to legislate for its implications on shareholder sentiment. He cites “many other shareholders” who share the duo’s scepticism.

TRG recently announced a rights issue of £315 million, intended to help fund the takeover of Wagamama. Raising capital in this manner requires that shareholders purchase shares offered to them at a discounted price; if shareholders are unwilling to make those purchases, as Mowery describes, then the generation of funds — and any deal predicated on it — will stall.

However, TRG has restated that the deal is supported by shareholders. A vote on both the acquisition and rights issue will take place at a general meeting on 28 November.

It looked like Wagamama was one of very few high street restaurant chains to have given the casual dining downturn a self-protected wide berth. While the initial bid is a signal of its secure position in the market — and the potential for considerable growth, in the eyes of TRG’s decision makers — this development could temper its perceived resilience. It also speaks to a wider going concern on the viability of restaurant investments — in sharp contrast to the booming investment potential so many people saw in recent years.

• TRG investors savage Wagamama bid [MCA/Paywall]
• Shareholder adviser backs The Restaurant Group for Wagamama takeover [The Telegraph]