Tory peer Cruddas plots £800m break-up of financial markets firm CMC

Published

3 years ago

November 13, 2021

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Lord Cruddas, the Conservative peer, is exploring a surprise break-up of CMC Markets, the financial spread-betting firm he founded 32 years ago, into two separately listed companies.

Sky News has learnt that the board of CMC could announce within days that it has begun work on the potential split.

City sources said this weekend that if agreed, the break-up would create a leveraged trading business housing CMC’s spread-betting operations, and a non-leveraged business containing its technology and new investment products platforms.

Both would be quoted on the London Stock Exchange, although only the “legacy” business would be likely to retain the CMC name, according to one source.

One insider suggested that the move could ultimately create hundreds of millions of pounds of value for shareholders – the largest of whom is Lord Cruddas himself, with a 62.5% stake.

The exploration of a break-up of the group is being led at board level by James Richards, CMC’s chairman, in conjunction with its advisers.

The process is at an early stage and may not lead to the split taking place, the insider cautioned.

If it does go ahead, it would underline a belief said to have been held for some time by Lord Cruddas, CMC’s chief executive, that the public markets have consistently undervalued the company and its prospects.

It would also represent a bold move for the former Conservative Party treasurer who was ennobled by Boris Johnson in controversial circumstances last year.

CMC, which is debt-free and has £400m of cash on its balance sheet, began as a player in the financial spread-betting sector, allowing clients to borrow funds to place wagers on financial markets using contracts for difference (CFDs).

It competes with the likes of IG Group and Plus500.

In September, the company issued a profit warning, citing “subdued” market activity in the preceding months which had resulted in lower client trading volumes.

The profit alert sent CMC’s shares crashing by more than 25%.

Leading shareholders were left frustrated by the market’s response, however, given the strong growth being demonstrated by other areas of CMC’s business.

Earlier this year, Lord Cruddas unveiled plans for a UK direct-to-consumer investment platform with the aim of rivalling Hargreaves Lansdown, Interactive Investor and AJ Bell.

Sky News revealed last weekend that abrdn, the FTSE-100 fund manager, was in talks to buy II for about £1.5bn.

CMC’s plan to launch a retail platform in the UK follows a successful partnership in Australia between the company and ANZ, one of the country’s largest banks.

Two months ago, the partnership was replaced by a deal that saw CMC acquiring more than 500,000 of ANZ’s share investing clients, taking the British company’s total assets under administration to about £40bn.

CMC is said to have been approached by a number of other major financial institutions about similar partnership arrangements.

While not of the same scale or complexity as corporate splits announced this week at General Electric, Johnson & Johnson or Japan’s Toshiba, the exploration of a break-up at CMC underlines a re-emerging trend in boardrooms aimed at unlocking value by simplifying their structures.

Any such deal would mark the latest chapter in a long and varied career for the CMC Markets founder.

A prolific donor who has given more than £3.5m to the Tories, Lord Cruddas was one of the founders of Vote Leave and gave the campaign group £1.5m ahead of the 2016 Brexit referendum.

The Electoral Commission disclosed in June that the peer had donated £500,000 to the Conservative Party just days after his ennoblement was confirmed by Boris Johnson.

The prime minister overruled the House of Lords Appointments Commission – which had signalled its opposition to the move – to hand Lord Cruddas a seat in the Lords.

As well as being one of the City’s most successful self-made businesspeople, Lord Cruddas is also a major philanthropist, having donated more than £20m to charity through his personal foundation.

In his letter to HoLAC, Mr Johnson said Lord Cruddas’s charitable giving was one of the reasons for his decision to overrule the Commission’s objection to the ennoblement.

Lord Cruddas served as Tory treasurer until 2012, when his term was brought to an abrupt end by a cash-for-access investigation by The Sunday Times.

The businessman successfully sued the newspaper for libel, although his financial award was later reduced on appeal.

A Court of Appeal judgement found that while aspects of his conduct had been “unacceptable and wrong”, it upheld the ruling of libel and malicious falsehood in his favour.

The tycoon was also exonerated by the Electoral Commission.

More recently, however, the newspaper has turned its attention back to Lord Cruddas and other former Tory treasurers who had donated at least £3m to the party and subsequently been awarded peerages.

Shares in CMC, which have fallen by a quarter during the last 12 months, closed on Friday at 261p, up just over 2%.

A CMC spokesperson declined to comment on Saturday.

Business

Cineworld owners screen plan for stock market comeback in New York

Published

11 hours ago

November 17, 2024

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Cineworld owners screen plan for stock market comeback in New York

Cineworld’s hedge fund backers are drawing up plans to return the cinema operator to the public markets amid continuing uncertainty about the future of dozens of its British sites.

Sky News has learnt that the company’s owners are at the early stages of considering a New York listing for the business, with the first half of 2026 considered a likely window for it to take place.

City insiders said that a flotation was likely to encompass Cineworld’s operations outside the UK, with the group’s board expected to consider a sale of the British operations at some point.

They cautioned, however, that no decisions had been reached and would not be for some time.

The fate of Cineworld’s business in the UK has been mired in uncertainty for months, with the company initially exploring a sale of it before turning to a restructuring plan which compromises many of its landlords and other creditors.

It has announced the permanent closure of six sites, but it emerged last month that nearly 20 more were at risk of being shut amid ongoing talks with property owners.

The restructuring plan is due to complete later this month, which some landlords have opposed over the fairness of its terms.

Documents circulated as part of the restructuring plan process highlighted the fact that the company did not have sufficient funding to meet a quarterly rent bill on June 24 of £15.9m.

“Absent this funding, the UK Group would have been insolvent on a cashflow basis,” they said.

Other cinema operators, such as Odeon, are now poised to step in to take over small numbers of Cineworld’s other sites.

The company trades from more than 100 locations in Britain, including at the Picturehouse chain, and employs thousands of people.

Cineworld grew under the leadership of the Greidinger family into a global giant of the industry, acquiring chains including Regal in the US in 2018 and the British company of the same name four years earlier.

Its multibillion-dollar debt mountain led it into crisis, though, and forced the company into Chapter 11 bankruptcy protection in 2022.

It delisted from the London Stock Exchange in August 2023, having seen its share price collapse.

In addition to the UK, Cineworld also operates in central and Eastern Europe, Israel and the US.

Cineworld has been contacted for comment.

Business

Former Tory minister Heaton-Harris eyes top job at football regulator

Published

2 days ago

November 16, 2024

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Former Tory minister Heaton-Harris eyes top job at football regulator

A former Conservative cabinet minister has thrown his hat into the ring to become the inaugural chair of Britain’s new independent football regulator.

Sky News has learnt that Chris Heaton-Harris, who stood down as an MP at July’s general election, is among those who applied for the role ahead of a deadline on Friday.

Mr Heaton-Harris is himself a qualified football referee who has officiated at matches for decades.

A former Northern Ireland secretary and chief whip under Rishi Sunak and Boris Johnson respectively, he said in 2022 of his part-time career as a football official: “I took a [refereeing] course and that was it, I’ve been going ever since.

“Football has done wonders for me throughout my life so I would recommend it to everybody.”

Mr Heaton-Harris is among a large number of people who have applied for the role of chair at the Independent Football Regulator (IFR), according to officials.

A publicly available timetable for the search says that interviews for the £130,000-a-year post will end on 11 December, with an appointment expected in the new year.

It is the second time that the government has embarked on a search for a chair for the IFR after an earlier hunt was curtailed by the general election.

The role will be based at the watchdog’s new headquarters in Manchester and will require a three-day-a-week commitment.

The Football Governance Bill had its second reading in the House of Lords this week, as part of a process that will represent the most fundamental shake-up in the oversight of English football in the game’s history.

The Labour administration has dropped a previous stipulation that the regulator should have regard to British foreign and trade policy when determining the appropriateness of a new club owner.

The IFR will monitor clubs’ adherence to rules requiring them to listen to fans’ views on issues including ticket pricing, while it may also have oversight of the parachute payments made to clubs in the years after their relegation from the Premier League.

The top flight has issued a statement expressing reservations about the regulator’s remit, while it has been broadly welcomed by the English Football League.

The IFR’s creation will come with the Premier League embroiled in a civil war over Manchester City‘s legal battles emanating from allegations that it breached the competition’s financial rules.

Next week, the 20 Premier League clubs will meet for a lengthy shareholder meeting, with a vote on amended Associated Party Transaction rules hanging in the balance.

The league needs 14 clubs to vote in favour for the rule changes to be passed.

Contrary to earlier expectations, however, a detailed discussion on a financial distribution agreement between the Premier League and EFL is unlikely to be on the agenda.

A Department for Culture, Media and Sport spokesperson said: “The process for recruiting the Independent Football Regulator chair is under way but no appointment decisions have been made.

“We do not comment on speculation.”

This weekend, Mr Heaton-Harris could not be reached for comment.

Business

Pizza Hut UK hunts buyer amid Budget tax hike crisis

Published

2 days ago

November 16, 2024

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Pizza Hut UK hunts buyer amid Budget tax hike crisis

Pizza Hut’s biggest UK franchisee has begun approaching potential bidders as it scrambles to mitigate the looming impact of tax hikes announced in last month’s Budget.

Sky News has learnt that Heart With Smart (HWS), which operates roughly 140 Pizza Hut dine-in restaurants, has instructed advisers to find a buyer or raise tens of millions of pounds in external funding.

City sources said this weekend that the process, which is being handled by Interpath Advisory, had got under way in recent days and was expected to result in a transaction taking place in the next few months.

HWS, which was previously called Pizza Hut Restaurants, employs about 3,000 people, making it one of the most significant businesses in Britain’s casual dining industry.

It is owned by a combination of Pricoa and the company’s management, led by chief executive Jens Hofma.

They led a management buyout reportedly worth £100m in 2018, with the business having previously owned by Rutland Partners, a private equity firm.

One source suggested that as well as the talks with external third parties, it remained possible that a financing solution could be reached with its existing backers.

HWS licenses the Pizza Hut name from Yum! Brands, the American food giant which also owns KFC.

Insiders suggested that the increases to the national living wage and employers’ national insurance contributions (NICs) unveiled by Rachel Reeves would add approximately £4m to HWS’s annual costs – equivalent to more than half of last year’s earnings before interest, tax, depreciation and amortisation.

One added that the Pizza Hut restaurants’ operation needed additional funding to mitigate the impact of the Budget and put the business on a sustainable financial footing.

The consequences of a failure to find a buyer or new investment were unclear on Saturday, although the emergence of the process comes amid increasingly bleak warnings from across the hospitality industry.

Last weekend, Sky News revealed that a letter co-ordinated by the trade body UK Hospitality and signed by scores of industry chiefs – including Mr Hofma – told the chancellor that left unaddressed, her Budget tax hikes would result in job losses and business closures within a year.

It also said that the scope for pubs and restaurants to pass on the tax rises in the form of higher prices was limited because of weaker consumer spending power.

That was followed by a similar letter drafted by the British Retail Consortium this week which also warned of rising unemployment across the industry, underlining the Budget backlash from large swathes of the UK economy.

Even before the Budget, hospitality operators were feeling significant pressure, with TGI Fridays collapsing into administration before being sold to a consortium of Breal Capital and Calveton.

Sky News recently revealed that Pizza Express had hired investment bankers to advise on a debt refinancing.

HWS operates all of Pizza Hut’s dine-in restaurants in Britain, but has no involvement with its large number of delivery outlets, which are run by individual franchisees.

Accounts filed at Companies House for HWS4 for the period from 5 December 2022 to 3 December 2023 show that it completed a restructuring of its debt under which its lenders agreed to suspend repayments of some of its borrowings until November next year.

The terms of the same facilities were also extended to September 2027, while it also signed a new 10-year Pizza Hut franchise agreement with Yum Brands which expires in 2032.

“Whilst market conditions have improved noticeably since 2022, consumers remain challenged by higher-than-average levels of inflation, high mortgage costs and slow growth in the economy,” the accounts said.

It added: “The costs of business remain challenging.”

Pizza Hut opened its first UK restaurant in the early 1970s and expanded rapidly over the following 15 years.

In 2020, the company announced that it was closing dozens of restaurants, with the loss of hundreds of jobs, through a company voluntary arrangement (CVA).

At that time, it operated more than 240 sites across the UK.

Mr Hofma and Interpath both declined to comment.