The Restaurant Group is finalising a deal to sell the Frankie and Benny’s and Chiquito’s restaurant chains to the owner of Cafe Rouge, in the latest concession to activist investors pushing for a shake-up of the struggling casual dining operator.
TRG, which also owns Wagamama, said in a statement late on Saturday that it was in “advanced discussions” with The Big Table Group, the company behind Cafe Rouge, Las Iguanas and Bella Italia, about a “potential divestment of its leisure business”.
The group’s leisure division, which includes Frankie and Benny’s and Chiquito’s, has consistently been the worst-performing part of TRG. It is the only division that has faced waning sales this year, with like-for-like sales falling by 3 per cent year on year in the 34 weeks to August 27.
By selling its leisure division, TRG’s management will hope to quiet activist investors including Hong Kong-based hedge fund Oasis Management and US-based fund Irenic Capital Management and Coltrane Asset Management, which have criticised the group’s languishing share price and called for a change in direction. Activist investors collectively own more than a fifth of the stock.
One TRG investor said the asset disposal was “generally welcome and [a] good first step”, making the remainder of the group “much more attractive” to a private equity or other buyer. Another investor said that a sale of the division “doesn’t help with leverage” because of the small amount it would be likely to fetch; management has promised to reduce net debt from more than 5 times earnings to 1.5 times by the end of 2025.
TRG cautioned that the deal may still fall through. “Whilst discussions are ongoing, there can be no certainty that they will lead to a transaction nor as to the final terms of any such transaction,” the group said. TRG declined to comment on the size of the transaction.
If the deal goes ahead, The Big Table Group, which is owned by private equity firm Epiris, would add 75 venues, employing about 3,000 staff, to its portfolio of more than 160 restaurants. Epiris declined to comment.
As the only listed casual dining operator, TRG has become a symbol of the struggles of mid-market restaurant chains to cope with soaring input costs and tepid consumer demand.
In a rare bright spot, TRG earlier this month boosted its profit expectations in light of strong earnings and revenue. But the group is still coming under sustained pressure from activist investors, which increased their ownership of the company after Columbia Threadneedle Investments, TRG’s previous biggest shareholder, cut its stake from 16 per cent to about 10 per cent.
Earlier this month, TRG’s chair Ken Hanna announced he would leave the group before next year’s annual meeting citing “personal reasons”. The announcement followed a vote against Hanna’s reappointment to the board at this year’s AGM and Irenic Capital calling for him to go in relation to corporate governance failings.