Interserve could go into administration on Friday as the outsourcing group fights to win support for a restructuring plan ahead of 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 pile 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 it does so, 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 such as that suffered by its fellow outsourcer Carillion.
Interserve has run into financial difficulty due to delays and cancellations to key construction projects, as well as an ill-fated foray into waste-to-energy projects.
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 outright.
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 European Union. 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 cherry-pick 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.”
The situation is complicated by the potential role of the Cabinet Office, which oversees government outsourcing and may not want to see public services parcelled out to a US hedge fund.
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.