Disgraced franchisor Retail Food Group (RFG) has been forced to deliver a please explain to investors after its share price inexplicably rose more than 70% in recent days, fueling speculation a big deal is in the works.
Shares in the scandal-plagued franchisor are worth about 77.7% more today than they were this time last week, following a surge in trading volumes since last Friday.
Several hundred thousand RFG shares typically trade daily, but more than seven million have changed hands in the last two trading days, including more than five million yesterday.
The company yesterday denied it was aware of any yet-to-be-announced information which could explain the hike after the ASC queried the extraordinary activity.
It did, however, point to an interview with executive chairman Peter George, published by news.com.au last Friday.
Interestingly, by the time of publication, RFG’s share price had already started its meteoric rise, up over 17% on the open.
The company has form in ‘mystery’ share rises. Back in March, its share price soared over 60% in the week before the company announced it had renegotiated its debt facilities.
While pouring cold water on speculation about a deal, RFG also reiterated confirmation it’s exploring a sale of non-core assets to pay down debt.
“RFG confirms that it is exploring a range of options to reduce debt, including the potential sale of non-core assets as well as equity and other debt funding proposals,” the company said on Monday afternoon.
“Discussions in relation to these matters are advanced.”
RFG is under the pump to pay down over $259 million in debt urgently after convincing its banks earlier this year to stick around.
But the company has been on the ropes for several years after the Sydney Morning Herald published an investigation into alleged franchisee exploitation within its network back in 2017.
Since then, a Senate inquiry into the franchising sector has taken the extraordinary step of recommending a broad investigation into current and former RFG directors for everything from consumer law breaches to tax avoidance.
“It appears RFG has operated a particularly unjust business model in which shareholders and senior executives have profited at the expense of franchisees,” senators said in their scathing assessment of the company.
Chairman styles himself as a reformer
George took over day-to-day leadership at RFG after former chief executive Richard Hinson resigned suddenly last December, after just a year on the job.
George, similarly to Hinson prior to his departure, styled himself as a reforming force within the company in his first public interview since taking the job.
He told news.com.au he thinks the company “can and should be given a chance to turn around”.
In more than seven months running the day-to-day, George said he’s spoken to more than 200 franchisees, admitting the environment is “sometimes hostile”, but nevertheless claiming the majority are supportive.
He didn’t, however, address May revelations Michel’s Patisserie franchisees were sent memos instructing them to ignore expiry dates on certain products, extending their shelf life by between two and six months.
The reports reference products from earlier this year, several months after George stepped into his new role. RFG has previously admitted engaging in the practice.
“RFG brands engaged with less than 1 per cent of its supplier network to request possible shelf life extension where appropriate and safe to do so,” the company said in May.
George also offered no comment on the swathe of regulator investigations recommended by senators earlier this year.
Class action looms
Maddison Johnstone, a franchisee advocate who works with business owners in the RFG network seeking redress, says many in the network still feel “despondent” with their franchisor.
“Retail Food Group franchisees are feeling despondent with a number expressing to us their plans to walk out,” she says.
“Lack of profitability and support are the most frequent reasons given by franchisees for their discontentment.”
Pointing to a recently launched franchisee class action against RFG, Maddison says she’s hearing from franchisees who’ve registered their interest on a daily basis.
“No longer can RFG have their cake and eat it, too.”