Thai Union to divest from Red Lobster, take USD 530 million impairment charge

The interior of a Red Lobster restaurant.

Thai Union plans to divest from its minority share of the Red Lobster seafood restaurant chain.

In a corporate announcement, Thai Union said its board of directors decided in a board meeting on Tuesday, 16 January to pursue an exit from its strategic partnership and minority investment in Red Lobster Master Holdings, which it has held since 2016.

Samut Sakhon, Thailand-based Thai Union is one of the largest seafood companies in the world. It upped its investment in Red Lobster in 2020, taking a larger stake in the chain as part of a consortium that bought out Golden Gate Capital’s remaining equity stake via its North American subsidiary Thai Union Investment North America. However, the Bangkok Post reported in March 2023 that Thai Union was considering a sale of its Red Lobster holdings after seeing its profits dragged lower due to the chain’s poor performance.

“During the past years, the combination of Covid-19 pandemic, sustained industry headwinds, higher interest rates and rising material and labor costs have impacted to Red Lobster business resulting in prolonged negative financial contributions to the company and its shareholders,” Thai Union said in its 16 January announcement. “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.”

Thai Union said it will record a one-time non-cash impairment charge of THB 18.5 billion (USD 530 million, 481 million) in Q4 2023.

“The board of directors considers that the company’s financial statements remain strong, and this one-time non-cash impairment will not cause any material adverse effect on the business operation, assets, or financial conditions,” it said. “However, 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 said it will “further seek covenant waivers from bondholders before the company releases its earnings in February.”

“The company continues to deliver improvements in profitability and gross profit margin across all core business categories. The company is in the process of finalizing its Corporate Strategy 2030, which will focus on its core business, centered around ambient seafood, frozen, and pet care. Through this, the Company’s management will advance ongoing strategies that strengthen its overall profitability and deliver long-term enhanced value for the company’s shareholders.”

In conjunction with the announcement, Thai Union announced a share buyback program not to exceed THB 3.6 billion (USD 101 million, EUR 93 million) or 200 million shares  – the equivalent of 4.3 percent of the company's paid-up capital. The program will run from 20 February to 30 June 2024.

The buyback program is designed to "ensure the company's excess liquidity management is conducted for the utmost benefit; to increase the return on equity (ROE) ratio and earning per share (EPS) ratio; to assure the investors or shareholders of the company of its capability to generate future income and profit of the company, as well as prove the company's strong financial position," it said.

As of 30 September 2023, Thai Union had THB 79 million (USD 2.2 million, EUR 2 million) in cash on hand. It said it expected to generate cash flow and dividend and loan repayment from its subsidiaries in Q4 2023 and H12024 in the amount of THB 5 billion (USD 141 million, EUR 129 million).

Traded on the Stock Exchange of Thailand, Thai Union's stock share price dropped 0.68 percent on 16 January to THB 14.60 (USD 0.41, EUR 0.37).

"I certainly wouldn’t say Thai Union’s announcement is all that surprising," Technomic Industry Research and Insights Director Kevin Schimpf told SeafoodSource. "Red Lobster has struggled in recent years and restaurant operations are somewhat outside of Thai Union’s primary business focus as a seafood supplier. Red Lobster has also struggled with leadership changes and has seen a slow but steady contraction in its location footprint. All of these factors don’t bode well for any publicly traded company."

According to Thai Union’s Q3 2023 results, released 6 November 2023, after a solid performance in Q2 2023, Red Lobster posted a Q3 2023 loss of THB 395 million (USD 11.1 million, EUR 10.4 million), up from the THB 339 million (USD 9.5 million, EUR 8.9 million) the brand lost in Q3 2022. Thai Union attributed the losses to industry challenges such as elevated material and labor costs and high interest rates.

Thai Union had revised Red Lobster’s loss guidance for 2023 to THB 500 million (USD 14 million, EUR 13.2 million) from its original THB 600 million (USD 16.9 million, EUR 15.8 million) thanks to the chain’s improved results in Q2 2023; however, with the increased losses the brand posted in the third quarter, but then reversed itself and said Red Lobster’s expected year-end loss would likely rise to an adjusted THB 700 million (USD 19.7 million, EUR 18.4 million).

In September 2023, Red Lobster hired Horace Dawson as its CEO, after struggling to fill the role for more than a year. In October 2023, the company’s management enlisted the services of management consulting company AlixPartners for operational guidance, in addition to receiving advisory services from Guggenheim Partners, with which it had collaborated in the past. In November 2023, it was hit with a loss after underpricing its popular Endless Shrimp promotion.

Yet as recently as March 2023, Thai Union had expressed confidence in its ability to successfully turn around its Red Lobster business.

“Regarding the recent questions on Thai Union’s strategic investment in Red Lobster, Thai Union would like to reconfirm that Red Lobster is still considered as a valuable opportunity for Thai Union," it said in a statement to SeafoodSource. "In the past few months, Red Lobster’s business performance has been improving and in line with expectations in terms of sales growth, cost of goods sold, and labor costs. This is a result of its continual focus on the business turnaround with initiatives including new menu offerings, ensuring value is delivered to customers, cost controls, and targeted marketing campaigns. Therefore, Thai Union is fully committed and supportive of Red Lobster on its business turnaround plan.”

Schimpf said Red Lobster will likely attract a healthy suite of buyers.

"It’s difficult to speculate exactly what comes next for the brand, but I’m sure there will be plenty of interested buyers given that Red Lobster is still the largest seafood restaurant chain in the U.S. by a significant margin, even despite its recent struggles," he said.

Photo courtesy of Zety Akhzar/Shutterstock


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