Thai Union Group, the seafood titan, said today (16 January) it would look to “exit” its investment in US restaurant business Red Lobster.
The Thailand-based processor said the chain’s “ongoing financial requirements no longer align with our capital allocation priorities”.
Thai Union first invested in Red Lobster in 2016, paying $575m for a minority stake.
According to Thai Union’s 2022 annual report, its shareholding in Red Lobster amounts to 25% of the group’s common units and 24% of its preferred units.
The company’s investment in the chain has attracted headlines in recent quarters. Last March, Bangkok Post reported the company was considering the future of its investment, quoting CEO Thiraphong Chansiri as saying the company “has never prolonged any bad businesses”.
In response, Thai Union issued a statement, insisting it was “committed” to the “turnaround” at the Florida-based business.
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When Thai Union published its financial results for the three months to the end of September, the company said Red Lobster’s “share of loss from operations” was Bt395m ($11.2m).
That compared to Bt339m a year earlier. Thai Union pointed to “industry headwinds, including higher material and labour costs, high interest rates and a cyclically lower quarter”.
Overall, Thai Union made a third-quarter net profit of Bt1.2bn, down 52.3% year on year. Operating profit fell 5.4% to Bt2.2bn. Revenue decreased 16.8% to Bt33.9bn, with Thai Union emphasising “an extraordinary high baseline last year”.
In today’s statement, the owner of the John West tuna brand said it would record a one-time, non-cash impairment charge of around Bt18.5bn in the fourth quarter of 2023 while it “continues to explore available options for its exit”.
The charge “will not cause any material adverse effect on the business operation, assets or financial conditions”, Thai Union said.
However, the company added: “This transaction impacts the interest coverage ratio and dividend cap restriction which are covenants under a few tranches of bonds previously issued by the company.”
Thai Union plans to “further seek covenant waivers from bondholders” before the group releases its next set of results in February.
Thai Union added: “During the past years, the combination of [the] Covid-19 pandemic, sustained industry headwinds, higher interest rates and rising material and labour costs have impacted to Red Lobster business resulting in prolonged negative financial contributions to the company and its shareholders.
“In this regard, the company and Red Lobster initiated a review of Red Lobster to identify areas for operational and financial improvement.
“After detailed analysis, the board of directors has determined that Red Lobster’s ongoing financial requirements no longer align with our capital allocation priorities and therefore the company is pursuing an exit of the minority investment.”