Allied Brands Ltd. has announced, over the signature of Peter Graham (profiled below), the purchase of another small franchise group.
Welcome, new small business franchisees to be victimised! Read about your future with Allied Brands in this blog! Kiss your business goodbye!!
Villa & Hut is a two-business company. One part sells overpriced furniture and other homewares junk imported from Indonesia and elsewhere. The kind of products that stop selling during recessions. The other part is an eco-friendly coffee shop chain. Despite talk of synergies and cost savings between this part-coffee-shop chain and CookieMan, this has never come to pass with the previous acquisitions by Allied Brands. It won't be long I guess before these Kafes are selling bad cookies instead of their current line of unique "eco-friendly" products.
In the announcement, Allied Brands is paying "$1M and assuming debts of $1.8M". Does this sound like a successful business? It mostly sounds like the bailout of a failing, distressed business from a failed franchisor. With this kind of debt load, the ACCC should investigate if Villa & Hut was trading while insolvent - the giveaway price to Allied Brands seems to indicate trouble, despite claims to the contrary.
And the announced finance strategy is stranger still. Allied Brands claims the business is "cash flow positive" despite the massive debt load and giveaway price they are paying. Allied Brands is offering existing shareholders $10K in additional shares, up to $2M in new capital. Why are they raising $2M when they only need $1M to pay Villa & Hut?
Allied Brands CEO Shane Radbone is acquiring 5.0M shares in ABQ at .15 ($750,000), paying for this new stock with an "executive loan" from the company! So existing shareholders are being asked to see their shares diluted further in order to give $750K to the CEO of a failing company! Usually, executives are rewarded for success. The continuing decline of Allied Brands operations, bleeding of cash, inability to sell new franchise locations, and share price collapse are not by any measure "success". And yet $750K is being stripped from the company's declining cash reserves to reward Mr. Radbone? Breathtaking!
The company announcement says this loan for shares is being provided "on commercial terms". What commercial terms? There is no commercial bank on earth that would loan 100% of the purchase price on Allied Brands shares, or any other shares. Isn't 100% share leverage illegal? Isn't this one of the greedy tactics by business that has caused the world financial crisis?
Additionally, Peter Graham's announcement admits that the additional money raised is being used to "prop up" the company's working capital!
DEAL SUMMARY
Buy a $1M company, get almost $2M in debt and ask shareholders for another $2M in capital, give a third away to a non-performing CEO, and use the rest to plug the cashflow hole in the existing businesses.
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We are attempting to contact Villa & Hut founder Franz Madlener to determine why he's selling what was previously thought to be a successful company so cheaply to these Allied Brands charlatans. Previously awarded as a "SmartCompany" award winner, Madlener has clearly made a deal with the devil for unknown reasons. These are not the actions of a "SmartCompany", they are the actions of an ignorant fool. As well as the existing franchisees who have already been in touch with this blog and sound both angry and disappointed in Mr. Madlener, we should have some further information later today. And we look forward to finding out how the many Indonesian and other suppliers to Villa & Hut feel when they hear how fellow Asian neighbours, the Koreans, have had their lives and families ruined by their purchase of Baskin Robbins shops and residency visas.
After the announcement of this "deal" by Allied Brands, initial sharemarket reaction? DOWN! You can bet these people will be in there "spinning" this yarn into something special today. It usually takes a few days to weed out the suckers and get the truth to reflect the reality! With more share dilution (in favour of management) and massively increased debt load, the only possible direction for these shares is DOWN.
UPDATE: ATTEMPTS TO CONTACT FRANZ MADLENER UNSUCCESSFUL. OFFICE STAFF SAID HE WAS "OUT CELEBRATING". WE'LL KEEP TRYING.
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