Shares plunge as Wagamama deal approved

SHARES in The Restaurant Group fell after it won a shareholder vote on its takeover of Wagamama in the face of opposition from more than a third of investors.

The stock closed down 15.1pc, or 35.5p, at 199.5p – its lowest level for nearly eight years – amid concerns over the £559m price tag and rising debt. Just over 60pc of shareholders in The Restaurant Group backed the takeover at a general meeting in London while nearly 40pc opposed it.

The lukewarm reception piles pressure on company bosses as they seek to revive its ailing fortunes.

It has more than 500 sites across the UK, and owns Frankie & Benny’s, Garfunkel’s and Chiquito, but sales fell 3.7pc in the first half of the year and rival chains such as Jamie’s Italian, Byron, Carluccio’s and Prezzo have shut hundreds of restaurants and axed thousands of staff in recent months.

A string of top investors warned the takeover raises ‘red flags’. Shareholder adviser Pirc said the ‘risks and adverse implications for shareholders appear too great to overlook’.

Sales at Wagamama, which has 133 sites in the UK, rose 8.5pc in the 16 weeks to August 19. The Asian-inspired chain, which was founded in 1994, is being sold by the private equity firms Duke Street and Hutton Collins.

The Restaurant Group will take on more than £400m of debt as part of the deal.

It also plans to fund the purchase through a rights issue of up to 290.4m shares at 108.5p each – less than half the value of yesterday’s opening price of 235p before the sell-off.

Investors have argued that The Restaurant Group needs to turnaround its own business before ploughing ahead with takeovers.

But chairman Debbie Hewitt said: ‘We are confident that the deal will create significant long-term value. The acquisition of Wagamama creates a raft of new opportunities for us to capitalise on.’

David Madden, an analyst at City trading firm CMC Markets UK, said: ‘There is a feeling they paid too much for Wagamama. The move comes amid a cautious consumer environment as companies have endured difficult trading.’

But Martin Cholwill, senior fund manager at Royal London Asset Management, which holds shares in The Restaurant Group, said: ‘We welcome the approval of the deal and look forward to seeing management deliver on the acquisition strategy.’