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  1. Analysis
May 16, 2011

Focus: What lies ahead for bankrupt Spanish food firm Nueva Rumasa?

Nueva Rumasa, the Spanish food group, is grabbing the headlines for the wrong reasons, after falling into bankruptcy with reported debts of EUR700m. Workers claim they have been left unpaid, investors have launched legal action and parts of the business are up for sale. Ivan Castano reports.

Nueva Rumasa, the Spanish food group, is grabbing the headlines for the wrong reasons, after falling into bankruptcy with reported debts of EUR700m. Workers claim they have been left unpaid, investors have launched legal action and parts of the business are up for sale. Ivan Castano reports.

“We never want to hear from this family again.” A leading trade union official describes workers’ bitter disappointment with Nueva Rumasa, a food group undergoing one of the largest and most embarrassing industrial bankruptcies Spain has witnessed. “They have lost all credibility with workers, creditors and suppliers.”

Margot Sastre, who is leading protests by the CCOO trade union over chronically late salary payments, is not alone in her condemnation of the Spanish company.

Angry private investors who participated in a EUR140m desperate bond sale (of promissory notes or IOUs) by Nueva Rumasa last year are also up in arms and have launched a major lawsuit against the firm, which owns brands including Dhul desserts and Cacaolat shakes.

The investors have engaged lawyers to sue Nueva Rumasa founder Jose Maria Ruiz-Mateos, six of his sons and seven company subsidiaries for “fraud, punitive insolvency, disloyal administration, and a crime against consumers’ interests”.

They want millions back in unpaid interest from the notes, which lawyers claim were issued despite the risk that Nueva Rumasa would default, given many of its businesses were facing insolvency.

Creditors too are after some EUR700m of reported debts after Nueva Rumasa’s bankruptcy earlier this year. Spain’s Santander bank is understood to hold the largest amount though reports last week said US private-equity firm Cerberus had bought much of the liabilities. There are also UK casualties. Marketing group Aegies announced in February that it will take a GBP25m charge this year to cover the risk that Nueva Rumasa will not pay its debts.

Despite Nueva Rumasa’s recent statements denying any wrongdoing, observers say the firm has not been transparent about its debts, accounts and the reasons leading to the insolvency of 12 of its subsidiaries, which have stopped paying creditors and are now under court protection. It is clear, however, that the firm’s high debts and questionable credibility have undermined its ability to raise funds at a time when sales are falling amid Spain’s deep recession.

“No-one knows just how big the company’s financial problems are and this is making it very difficult to value its businesses,” says Cesar Garcia, a senior banker at Madrid-based M&A advisory firm DC Advisors. “This family has entered into commitments they simply cannot pay.”

According to Garcia, several industrial and private-equity bidders are eyeing the firm’s assets with Dhul and egg producer Hibrame seen as the company’s crown jewels. Ruiz-Mateos and his sons still manage Cacaolat and Helados Dhul (Dhul’s ice cream unit) but the wider Dhul franchise, which makes frozen desserts, dairy firm Clesa, Hibramer and Queserias Menorquina (a cheese purveyor) have all been stripped from his management and have fallen under the control of bankruptcy administrators appointed by Spanish courts. “Dhul, Hibramer and Clesa are the most interesting assets,” Garcia adds.

Hibramer officials have said a dozen firms including Portugal’s Deurovo, Spain’s Garcia Puente and Matines Iberica are interested in buying the company. The firm has reportedly already rejected an offer by Italy’s Eurovo.

Meanwhile, Portuguese private-equity firm Megafinance is expected to announce a bid of “well over EUR70m” for either Dhul and Cacaolat or both. Megafinance has emerged as the only official buyout firm interested in Nueva Rumasa after US rival Oaktree Capital pulled out of the process last month. Last Wednesday, Spanish press reported that Megafinance was considering re-purchasing some of Nueva Rumasa’s debt from Cerberus. Bankruptcy administrators were expected to have met on Friday to hammer out a turnaround for the company.

Officials at Nueva Rumasa and its subsidiaries would not return requests for comment.

Sastre does not believe any of of the rumoured bids for Nueva Rumasa are firm. “We don’t have any facts that show these offers are real,” she notes, adding that last week’s announcement that Queserias Menorquina will be acquired by its workers is the “only piece of reliable information” about the company’s bankruptcy process so far.

Sastre, a Queserias employee and workers’ committee secretary, says the CCOO union is hoping bankruptcy administrators will sell each of Nueva Rumasa’s businesses as soon as possible to herald the end of the Ruiz-Mateos family’s reign over the company.

She blames the family’s “poor management skills” for Nueva Rumasa’s troubles, adding that virtually all of the holding’s 3,000 employees are owed two-to-five months in wages, a reality that has fuelled union and worker protests across Spain in recent months, turning the company’s plight into a national drama.

The bad publicity generated by the company comes as no surprise. Ruiz-Mateos was the founder of Rumasa, a larger industrial holding expropriated by Spain’s government in 1983 for failing to pay taxes. Six years ago, Ruiz-Mateos (who was prosecuted for Rumasa’s 1983 collapse) decided to rebuild his empire by re-launching Rumasa as “Nueva Rumasa” and buying up food and drink interests to add to a portfolio of hotels and retail franchises.

And now it looks like the new company could be bound for a similar fate. An M&A banker in Madrid says bankruptcy administrators will have a hard time selling Dhul for a fair price. “This is a frozen desserts businesses which doesn’t fit in with any Spanish competitor’s franchise,” he says. “This will be more attractive for a foreign company looking to establish a distribution network in Spain but most of the big ones (including Danone and Nestle) already have one.”

The banker says administrators are better off calling in a private-equity fund to gobble up Nueva Rumasa, introduce new management and turn around the firm.

The likelihood of that happening is anyone’s guess. Many observers believe the company’s turnaround could last up to three years.

“No-one really knows what’s going to happen yet as the administrators themselves are still doing due diligence on the businesses,” the M&A banker says, adding that it might make sense to sell some businesses while restructuring others.

One thing is for sure though, the M&A banker adds. “The Ruiz-Mateos family has lost every thing and Nueva Rumasa as a name will certainly disappear.”

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