Interserve could go into administration on Friday as the outsourcing group fights to win support for a restructuring plan before a crunch vote.
Shareholders will give their verdict at an emergency meeting on Friday on a proposal put forward by banks and hedge funds, which have offered to forego £485m of the company’s £631m debt in return for most of its equity, leaving existing investors with just 5% of the shares.
The Reading-based Interserve employs nearly 45,000 people in the UK and manages a host of public services. It is the largest provider of probation and offender rehabilitation services in England and Wales, and has thousands of government contracts that range from hospital cleaning and school meals provision to maintaining military bases in the Falklands.
The US hedge fund Coltrane, the largest shareholder with a stake of nearly 28%, has been holding out for a better offer and may command enough support to derail the plan. The proposal needs the support of more than 50% of voting shareholders to go through.
If the plan is voted down, Interserve is all but certain to go into a pre-pack administration. The process would wipe out shareholders altogether but allow the company to keep trading, avoiding a spectacular collapse like that of fellow outsourcer Carillion.
Interserve has run into financial difficulty after delays and cancellations to key construction projects, as well as an unsuccessful foray into waste-to-energy projects.
Interserve has a vast number of public sector contracts in the UK in areas such as school meals, hospital cleaning and probation services. It has also worked on road projects on the M5, maintains some of Britain’s busiest railway stations, and cleans more than 2,000 London Underground carriages every evening.
Interserve in numbers
45,000 Number of UK employees
700 The number of schools where it provides catering services
40,000 The number of medium- to low-risk offenders on probation that Interserve supervises
150 The number of BBC sites, including Salford Media City, where Interserve provides total facilities management
£227m The value of a five year contract for providing office management, catering and waste disposal at 700 DWP sites across the UK
A63 The new footbridge crossing the road at Princes Quay in Hull, used by 45,000 people a day, is one of many construction projects Interserve is running across the UK
£25m Interserve’s part of a contract to redevelop the Prince Charles Hospital in Merthyr
600,000 The number of visitors to Edinburgh Zoo, where Interserve does the cleaning, security, park presentation, waste disposal and washroom services.
£250m The sum paid by Interserve to buy Initial Facilities from Rentokil Initial in 2014, adding more than 25,000 new employees to the group.
51 The number of years that Interserve will hold the concession to build and run two new colleges at Durham University
If the restructuring plan is rejected, the accounting firm EY would oversee a pre-pack administration process under which shares in the group’s parent company are delisted and the firm’s operations are sold to the lenders. Interserve has said this would allow business to continue as usual, including on its government contracts.
Despite the risk that its shares would be wiped out, Coltrane has so far rejected the lenders’ restructuring plans.
It is also understood to have turned down a tentative verbal offer that would have sweetened the deal to give shareholders 7.5% of the company.
A source close to Coltrane said the two sides were now “headed for a no-deal scenario”, in a nod to the uncertainty surrounding the UK’s exit from the EU. Coltrane is understood to have told Interserve that it would not back down, despite the likelihood that the company will go into administration if shareholders reject the plan.
The US hedge fund is understood to have indicated that it would be happy to allow the company to go into administration and would seek to negotiate with EY to cherrypick parts of the business to buy.
The source said: “[Coltrane] believes in outsourcing and believes in Interserve as a company, they just think it’s overgeared.
“Coltrane thinks the market, post-Carillion, has taken the wrong view on outsourcing as a business model so they might well be interested in that [buying assets out of administration]. They’ve said to EY to give them a call.”
Interserve has so far rejected an alternative proposal put forward by Coltrane that would also involve a debt-for-equity swap but also a £110m rights issue, leaving existing shareholders with 55% of the company.
The Cabinet Office, which monitors the government’s contracts with private-sector suppliers, said it was receiving regular updates from Interserve. Officials at the department said they believed that there would be no disruption to public services even if the company went into administration, a process they expected to be wrapped up by Saturday morning at the latest.
