11th-hour deal emerges to save government outsourcing giant Interserve from collapse
Outsourcing giant Interserve (IRV.L) sought an 11th-hour rescue deal to save it from total collapse on Friday.
Interserve was placed in administration on Friday afternoon after failing to secure shareholder support for a rescue plan. This follows months of talks with investors and debt holders over its huge debt pile and fears that it could become another Carillion, the building outsourcer that collapsed with debts of £1.5bn last year.
However, the administration — akin to declaring bankruptcy — was part of a bigger plan for Interserve’s debt holders to form a new company and immediately buy the bulk of Interserve out of administration.
The new “pre-pack administration” plan wipes out Interserves shareholders, leaving them with nothing, but also reduces the group’s huge debt pile.
Interserve, which employs 65,000 people around the world and is one of the UK government’s biggest outsourcers, said the deal was “the best remaining option to preserve value, protect the jobs of employees, and ensure the Group can carry on as normal with minimal disruption.”
It comes after Interserve failed to secure investor backing for a restructuring plan. A shareholder vote on Friday saw 60% of investors reject Interserve’s debt-for-equity rescue plan that would have almost wiped out investors, but saved the company from collapse.
The board held an emergency meeting in the wake of the vote to “consider its options,” before announcing the alternative plan.
Interserve employs 45,000 people in the UK. It runs government contracts covering everything from cleaning schools, running probation services, and building roads in the UK. It won contracts worth over £130m from governments and councils across the UK in 2018 alone.
“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,” a Cabinet Office spokesman told Yahoo Finance UK.
The company was once worth £1bn, but has seen its value collapse as concerns grew about its near £650m debt pile. The company is currently worth £17m. Shares were suspended on the London Stock Exchange on Friday.
“Interserve is the largest probation provider and responsible for 40,000 offenders,” Labour’s shadow Justice Secretary Richard Burgon tweeted. “It’s now set for administration. This should be the final nail in the coffin for Chris Grayling’s failed probation privatisation.”
Labour MP Rachel Reeves tweeted: “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.”
“Ministers have learnt absolutely nothing from the Carillion fiasco and are hell-bent on outsourcing public-sector contracts,” Kevin Brandstatter, GMB national officer, said.
“Shambolic mismanagement is putting jobs on the line and services in jeopardy. Our public services can’t go on like this.”
Federation of Small Businesses (FSB) national chairman Mike Cherry said: “The collapse of Interserve highlights once again the dangers of relying on a handful of outsourcing giants. At a time when political uncertainty is weighing heavily on small business confidence, this development will spark further fears across its supply chain.”
Interserve’s rescue plan was opposed by two US hedge funds. One of them, Coltrane, owns 28% of Interserve and would have had its stake cut to just 1.5% under the debt-for-equity swap plan. Coltrane is understood to have voted against the rescue package.
