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I have spent some time puzzling over this - and I have wondered what Cooper's strategy really is. And I think I have it.
But lets spell out the material as we know it.
1). The business is loss making at the moment - we do not know whether it is loss making in an absolute sense - or whether it is only loss making after you run through the legal fees etc associated with the current uncertainty. But it is loss making after legal fees etc - and it is probably not very profitable net of those fees in the best case.
2). There may be a profitable core. That is if you close down say 200 out of 400 stores you will wind up with a profitable 200 store franchise. It may be that you need to close 100 stores or 300 stores. There is SOMETHING there though - the brand is worth something and the way to extract that value is close unprofitable stores. As bulls are quick to remind you on this site - some stores are staggeringly unprofitable. This is the good news - because it means some stores are profitable. It would be bad news if all the stores were bad.
3). So far Cooper has not closed many stores.
4). Krispy Kreme has guaranteed many of the franchisees. KKD does not control all of the stores - and some of the franchisees are staggeringly unprofitable - noted by the fact they are breaching their debt covenants and KremeCo is bankrupt.
5). There have been NO financial statement - and yet none of the accounting looks too hard. It simply does not look hard to account for a donut store. You might have problems because previous management stole the files regarding purchase of franchises - but there are even rules for "fresh start" accounting in these circumstances. If this were a case of stolen files we would be told that by now. So I am assuming that the filings have not been made because it is not in Krispy Kreme's interest to make them.
So what is going on.
Bears would say that he is not closing any stores because he can disavow leases in bankruptcy.
But this is too simplistic. If that were the case he would just file bankruptcy now.
Bulls would say he is not closing many stores because they can work it off. But that is implausible. Many of these leases are long dated.
I got another hypothesis.
If KKD files bankruptcy now then KKD only owns about 100 stores. Most of the rest are in the franchises who will file bankruptcy separately where necessary. So KKD does not want to file bankruptcy now. If they do they can't achieve the real objective here - which is to shrink this to the profitable 100 or 200 store franchise.
But KKD can wait and wait (with Silverpoint's money bankrolling them). As they do the franchisees will one-by-one give up the ghost. KKD can't honour the debt but it can ASSUME OWNERSHIP OF THE FRANCHISEE - which is more or less what will happen with KremeCo.
When it assumes ownership of the franchisees it winds up controlling all 400 stores. Only then does it file bankruptcy. Then KKD can shrink from 400 unprofitable stores to 100-200 profitable ones.
Silverpoint will own it.
There is NO POINT filing bankruptcy until the franchisees fold it.
And there is no point filing the accounts until you have assumed the franchisees - because if you do that the gig is up.
Its the only hypothesis I can think of that fits all the facts.
You are point on in my book.Before the Publis offering there was a "core" of active stores that were profitable.there is no doubt in my mind that once the Frans' are driven out ,a new KKD will arise.Not that any current equity holders will have any interest left...hank
That is why it is so strange that "Smart" people are buying at 4.50 a share!
If you really want to gamble with almost no chance of winning, buy a Powerball ticket. At least the risk/reward is better!
Many people (like me) have also believed the same hypothesis, but don't bother sometimes responding to people who just disagree about everything...so yes, you nailed it on the head in your post - the remaining question is merely about the time frames...
Oh and also, I think Cooper needs to ensure that KKD corporate has control of a majority of the stores first prior to BK in order to control the Krispy Kreme brand, as I've mentioned. I don't know where that critical mass is, but it's obvious from franchisee comments that KKD corporate is trying to push the biggest ones into BK first. Conversly I think there are franchisees that are playing a similar game.
Again I ask..."WHO (which lender consortium) HAS THE DEEPEST POCKETS?!?!"
If I recall correctly, I think I posted this question LONG before your hypothesis post...
Why pay even a nominal sum for franchises? If KKD wants to take stores from franchisees, they can do take away their franchise rights at any time without paying a cent. All franchisees are likely in violation of their franchise agreements, specifically agreements to open franchises on a specific schedule. Since there hasn't been a new store in years, my guess is they are all in violation. And revoking franchise rights means KKD can start over new store concepts in key markets, an possibly new franchise partners, etc, instead of being stuck with stores that are too large and expensive to ever make money.
So why doesn't KKD revoke franchise rights? My guess is there are three key reasons.
1) They'll lose the remaining franchise and mix fees they can suck out of the franchisees before they finally go belly up.
2) Franchisees have legal claims and fraud allegations (ala GCFF) against KKD they will pursue in court, so KKD wants to play nice for as long as possible.
3) KKD has no more borrowing capacity, and the $19M in remaining cash is dwindling with the recent cash outflow to buy GCFF and the loss of $3M+ in AR to Rigel. How are they ever going to build a new store or con a new franchise partner?
I think the hubris of posters on this board is to think that Cooper or Silverpoint or the invisible new CEO have some "grand plan" to save KKD or instead, profit from it's demise.
Instead, I think all parties are pedaling as fast as they can until the wheels fall off the bike. Cooper is making great money, they have no incentive to quit, bankruptcy just means more fees. The invisible CEO is a CEO of a public company for the first time in his life, he'll milk that for as long as possible and then blame the results on others (unless he can make a lateral move to another public company CEO spot). Silverpoint made a horrible loan that they are stuck with, I mean, is the guy who sponsored it even there anymore?
Silverpoint doesn't want bankruptcy. Then they have to fight it out with all the other creditors, all of whom are going to use alleged fraud as a reason to move their claims in front of Silverpoint. So they'll milk KKD for as much interest as they can get before BK, all the while praying for some sort of magical turnaround that could enable them to exit with their loan fully repaid.
The only way KKD buys more stores, even for nominal amounts, is if someone holds a gun to their head. That's essentially what GCFF did, and KKD was lucky GCFF ran out of cash and settled their claims cheap.
I very much like what you say.
A bum loan to start -- bond mavens going for a busted business they didn't understand, clothing their financing in useless legalize; Cooper, Weil Gotshall, and PWC feeding on the corpse; sharpies trading on inside information, shares and options; SEC, Justice and the shareholders in the wings.
Long forgotten are the much abused Krispy directors who hold the ultimate power to file, who might, just might, face up to halting the whole miasmic charade, personal liability be damned.