Interserve set to fall into administration after failing to secure investor backing
Interserve has failed to secure investor backing for a rescue plan and is set to fall into administration, with lenders seizing control of the outsourcer.
Investors in Interserve - which holds crucial Government contracts for a range of services in prisons, schools and hospitals - voted against its proposal at a meeting on Friday.
Interserve said: “The board of directors of the company is convening an urgent board meeting to consider its options.
“In the absence of any viable alternative, it expects to implement an alternative deleveraging transaction, which is 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 (i.e. the entire group) to a newly-incorporated company, to be owned by the existing lenders.”
The firm added that the administration and sale to its lenders is expected to be completed on Friday evening and the business will continue to operate “as normal for customers and suppliers”.
Shares will be suspended from trading on the London Stock Exchange immediately.
Interserve, which employs 45,000 in the UK, has lined up EY to carry out a pre-pack administration, after which the firm will fall into the hands of its creditors.
Lenders such as RBS, HSBC and BNP Paribas - together with Emerald Asset Management and Davidson Kempner Capital - are expected to seize control once the process is complete.
The pre-pack process will allow it to avoid a Carillion-style collapse, to the relief of Government.
Under the rejected plan, aimed at slashing a near-£650 million debt mountain, the group had been proposing a debt-for-equity swap with its lenders that would have resulted in existing investors seeing their holding slashed to just 5%.
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However, New York hedge fund Coltrane, Interserve’s largest shareholder with more than 27%, dismissed the plan, which was eventually rejected by over 59% of shareholders.
It had required the support of over 50% of shareholders to gain approval.
Interserve has been hampered by high debts, construction delays and a failed foray into the energy-from-waste market.
Rachel Reeves MP, the Labour MP for Leeds West and Chair of Parliament’s Business, Energy and Industrial Strategy Committee, said on Twitter: “First Carillion and now Interserve. The gov’t model of outsourcing services to cut costs has failed. It is time to bring these contracts back in-house.”
Kevin Brandstatter, national officer for the GMB union said: “Ministers have learnt absolutely nothing from the Carillion fiasco and are hell-bent on outsourcing public sector contracts.”
“Shambolic mismanagement is putting jobs put 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.”
Neil Walters, national chair of the NFB, said: “When will clients see the advantage of using financially sound SMEs, who are in control of their business and win work on reputation?
“Tier 1 contractors must reform to demonstrate value for money, an appropriate financial model and respect for their suppliers, staff, and the long term victims of their decisions. Otherwise this cycle of failure will keep hurting our industry, costing taxpayers’ money and good people their jobs and businesses.”