Interserve faces administration but all jobs are to be saved in sale
Written by News on 16/03/2019
Outsourcing firm Interserve is on the verge of collapse after investors rejected a rescue deal that would have seen their holdings slashed.
The stricken company said trading in its shares had been immediately suspended pending administration and a planned sale that will see its various divisions – and 45,000 UK staff – protected.
Interserve had been working on the contingency plan in advance of the vote to prevent a possible repeat of the messy Carillion-style demise in 2018 that left its staff and contracts – including many in the public sector – in limbo.
Over 59% of shareholders rejected the restructuring proposal – a so-called debt-for equity swap with Interserve’s lenders that would have seen investors’ holdings dive to just 5%.
The board said its next steps were “likely to involve the company making an application for administration and, if the order is granted, the immediate sale of the company’s business and assets to a newly-incorporated company, to be owned by the existing lenders.”
The statement added that the pre-pack administration process, as it is known, should be completed by Friday evening meaning the business could continue to operate as normal.
The company is one of the biggest private sector employers in areas such as office-cleaning, while it also cleans the London Underground, and maintains British Army bases around the world.
According to data from market intelligence firm Tussell, Interserve has at least 50 current contracts worth £2.1bn with the public sector – most of them with central government.
Its problems – like many in the outsourcing sector – stem from weak margins on major contracts.
The restructuring was aimed at reducing its massive debt pile of almost £650m
The failure of shareholders to agree the move means the banks that had agreed the debt-for-equity swap, including RBS and HSBC, will own the proposed new company.
Sky News reported earlier this week how Interserve’s largest shareholder, New York hedge fund Coltrane, had applied pressure to the company’s prospective administrator over the proposed pre-pack deal, urging EY not to sign-off the pre-pack process.
The fund, which has 27% of Interserve’s shares, voted against the restructuring.
Interserve said it expected existing shareholders would receive nothing while the new bank-owned company would exchange £485m of existing debt for new shares and provide £110m of additional funds.
A Cabinet Office spokesman said of the developments: “This announcement will not affect jobs or the provision of public services delivered by Interserve.
“We are in close contact with the company and we are confident a positive way forward will be found.”
While ministers will be relieved about no repeat of the Carillion chaos, the GMB union said it was disgraceful that public services were still being put at risk through outsourcing to the private sector.
National officer Kevin Brandstatter said: “Ministers have learnt absolutely nothing from the Carillion fiasco and are hell-bent on outsourcing public-sector contracts.
“Shambolic mismanagement is putting jobs on the line and services in jeopardy. Our public services can’t go on like this.”
Richard Beresford, chief executive of the National Federation of Builders, said: “This decision on Interserve’s future shows why we need to reform the procurement process from its foundations to ensure that more regional contractors can compete and win work, the damaging trend to work within wafer thin profit margins does not continue, and spread risk across fiscally responsible businesses who reinvest profits and are not bound by shareholders.”
(c) Sky News 2019: Interserve faces administration but all jobs are to be saved in sale