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Edward Ryan's picture

Ambac: DBI & BR Australia

A non-responsive franchisor is a default of the securitization covenants.  Some interesting events are unfolding in AU with the Allied Brands (ABQ) and Dunkin Brands (DBI) relationship.  The BR Australia ABQ Blog is reporting that DBI has withdrawn the Notice of Termination it served to ABQ.  However, DBI reserved its rights based on ABQ’s ability to cure the monetary defaults within 30 days.

On 09/21/10, ABQ issued a statement - posted on the Australian Securities Exchange (ASX) website – announcing that it will be serving DBI with Notice to invoke the mediation provisions of the Australian Franchising Code.

According to the Master Issuer’s indenture documents the owner of BR Australia is defined as:

In Australia, a Dunkin’ Brands subsidiary, BR Australia, imports Ice Cream Products manufactured at the Peterborough Facility into Australia, which products are subsequently resold to a third party and ultimately sold by such third party to Franchisees in Australia. Pursuant to the BRINT Contribution Agreement, BRINT will contribute 100% of the Equity Interests in BR Australia to the Master Issuer, which will then be entitled to receive all dividends and other distributions from BR Australia.

The Master Issuer, as owner of BR Australia, is entitled to receive all dividends and other distributions declared by BR Australia pursuant to the terms of the BR Australia Charter Documents. BR Australia will not guarantee the obligations of the Co-Issuers under the Indenture, but the Master Issuer will pledge 65% of the Equity Interests (and related rights with respect thereto) in BR Australia to secure the Co-Issuers’ obligations under the Indenture.

BR Australia is essentially a partnership between the Master Issuer – DB Master Finance, LLC and Dunkin’ Brands, Inc.  As explained above, the Master Issuer gets money, and therefore, controls BR Australia.

Now, if ABQ is looking serve notice to their BR Franchisor– as previously discussed here, the notice must be served to Ambac Assurance Corp (AAC) since they own the “control rights” to the franchise collateral.  Probably explains why BR Australia has been so very, very non-responsive to the ACCC – they need to be served in order to comply with the Franchise Code.  Yes, I’m amused as we watch the ABQ/DBI divorce unfold….

Boudica Lawson's picture

Allied Brands and Cookie Man

In related news, Allied Brands has called a new trading halt today the 24th september, pending an annonuncement "regarding the future of Cookie man pty Ltd".

Cookie Man is one of Allied Brands recently acquired franchise chains.

 

Cookie man

Cookie man is a stupid concept that seems to have had life only because it was tied to sucker BR zees. Happy birthday Jas ..

Edward Ryan's picture

Andrew Terry, a professor of

Andrew Terry, a professor of Business Regulation, at The University of Sydney, recently published an article titled, “Public vs private”.  Professor Terry raises the question:

What then of the position of a franchisee of a public or listed franchisor?

Then proceeds to answer with the following:

The obvious concern is that the interests of franchisees will be subordinated to the interests of shareholders. This is an argument which is invariably raised when a state asset is privatised and moves from public to private ownership - that shareholder pressure to maximise returns will result in reduced service performance.  From a corporate law perspective the law is relatively clear. The directors owe their duties to 'the company as a whole' - to the general body of shareholders.

Professor Terry goes on to say:

Much attention is currently being given to the notion of 'corporate social responsibility' and the concept that directors duties are owed to other key stakeholders such as employees and creditors but CAMAC, the government's corporate advisory body, has recently recommended that no change be made to the statutory duties of directors to include such wider social responsibility.

The notion of “Corporate Social Responsibility” implies that in a franchise system a “model” franchisor would prioritizes the rights of its franchisee stakeholders over the rights of those “other” shareholders.  However, the CAMAC recommendation to make no changes to a director’s statuary duties was most likely premised on the rational that franchisees have regulatory sounding boards to exercise their rights and get their voices heard.

Franchisees obviously have significant rights under the Franchising Code of Conduct and other regulatory instruments as well as under the franchise agreement itself. These legal rights are of course supplemented by commercial realities.

Having read the numerous comments from our friends down under regarding the ACCC I’m incline to believe that the Franchising Code of Conduct might have shut the door on this whole public vs private franchising dilemma by staying silent on the debacle between AB and the BR franchisees.  What are the shareholders of ABQ doing to stop DBI from destroying ABQ stock value through the termination?  I guess a better question would be – Who are the ABQ shareholders?      

What are the Baskin-Robbins franchisees doing in response to the current situation between DBI and AB?  Can the BR franchisees initiate a hostile takeover of AB in order to integrate the supply chain between the distributor and the retailer?  This would mean a partnership with DBI.  Once again, DBI is not the franchisor – just another US bond servicing shop.

Allied Brands NOT a victim

The situation between Dunkin Brands, Allied Brands Australia, and the long-suffering Baskin Robbins franchisees in Australia is definitely more complicated as the layers of the onion get peeled. However one have to goes back to basics to get a sense of what's going on.

First we have Dunkin, a venture capital company, who's previous CEO Jon Luther screwed over the franchisees in search of a buck. Even the VC companies finally got the message that a franchisor with few profitable franchisees ultimately is doomed. Then they bring in Nigel Travis, with a reputation for "true partnership" with the zees. He's been faced with this rogue situation in Australia, where ABQ became little more than a pyramid scheme selling more and more shares and getting little in return for all this cash. The Baskin blog in Australia has it right when they continue to claim that millions are missing. Maybe not "stolen" in the classic sense, but syphoned off by a few leaving the company undercapitalized.

Top that off with employee lawsuits, middle management that don't produce, and "get rich quick" schemes like selling franchises and residency visas to foreigners and it's no wonder Nigel Travis has had enough. If nothing else, all this bad Australian Karma can't be good for the big markets in Korea, Japan, and now China coming online.

Ray - Allied Brands ABQ

Ray writes:
"If there is going to be some pain then the investors should be quite capable of taking care of their business. I’m not so sure where that would leave the franchisees of all AB's brands."

Nothing much will change for the BR Australia franchisees, if ABQ goes down under (no pun intended). DBI using the BR Australia shell entity will become the new BR Master Franchisee in Australia. DBI and ABQ are in bed together as referenced in ltlSHRNY blog. The advantage for DBI is that they will be able to cherry pick the revenue producing FAs from ABQ portfolio - on the cheap.

Think of it as merely a master franchise "control" party restructuring through the inevitable bankruptcy auction of ABQ.

As a side, Allied Brands history seems to be rooted in the brewery/spirits business - Genesee Brewery. DBI also shares its roots in the brewery/spirits business - Hiram Walker/Corby Distillery.

Imagine if they were connected through the various shell corporations under Allied Lyons, PLC and Pedro Domecq SA prior to the breakup of Allied Domecq PLC?

Allied Brands Misleading

The reason the company in Australia is called "Allied Brands" has NOTHING to do with the previous owners of Dunkin, Allied Domecq in the UK. This was just another sleazy attempt by Allied's owners to mislead investors, making them think that Allied Brands was somehow related to Allied Domecq. Nothing could be further from the truth.

The only "investment" Dunkin has in Allied Brands is all the unpaid ice cream and product invoices. A quick look thru any of the Brisbane area shops shows how little product is available to the franchisees - one told me he had only 13 flavours available to him. This has been going on for months.

And the worst thing is the (disclosed) lawsuits by former employees against Allied Brands. One is apparently a sexual harassment suit. If true, with the David Jones problem front and centre, this one could easily cost Allied hundreds of thousands or more in payouts.

From Ray's earlier comment I

From Ray's earlier comment I take it that if BR is taken by Dunkins it may leave a problem for the other AB brand franchisees?

If Dunkin pulls Baskin

If Dunkin pulls Baskin Robbins from Allied Brands, all they've got left is the Cookie Man brand that hasn't been too screwed up. Cookie Man continues to be run by an honourable guy who's run the brand for years. He's angry at ABQ after he got conned to sell up to them a few years ago. He's said not to want the brand back (he was just looking to cash out), but may end up with it in any liquidation.

I'm of the belief that people are going to be prosecuted for this whole mess. The ACCC can't allow rogue franchisors like Allied to operate with impunity. These people all need to have their right to act as directors suspended.

Boudica Lawson's picture

BR represents substantial percentage of revenue for Allied

If Dunkin terminates Allied's BR agreement and manages to sell Villa and Hut and awesome water franchises as it intends to, It won't have much in the way of "other brands" left.

You can read the breakdown of each franchise brand revenue in their Preliminary Final report available on the ASX website.


The loss of BR will also have an impact on the planned capital raising measures.

As noted in their 2010 results announcement and further elaborated upon on the Baskin- Robbins Allied Brands blogsite former CEO Shane Radbourne owes AB a not insubstantial sum of money. Perhaps we shall see renewed vigour from AB in calling in this loan, if only to finance a legal fight with Dunkin'.

When describing the BR business, Allied stated on the 31st August 2010 that

This business remains a key element of Allied Brands moving forward and additional resources will be allocated to it.

Ray Borradale's picture

I’m trying to think

Apparently it’s a secret as to the alleged grounds for a possible termination.  I’m wondering whether it is the old ‘not paying’ or I suppose it could be a failure to ‘comply’ or some other ‘contractual obligation’ or maybe even failing to ‘respond to DB communication within a reasonable time frame’.  Does it really matter as to what selection was most convenient?

I know there are a lot of very unhappy BR franchisees but stand back for a minute and consider in this instance the Australian [master franchisee] franchisor is on about the same footing as the average franchisee in a conflict with any franchisor.  

So the AB directors/investors are now your kin.

OK, I’ve read and heard enough to find the irony in this situation but here again is someone [an investor entity] learning just how systemic the franchising power plays are played at their level.

It would be timely to hear from AB.  There must be some confidence there. Seriously every franchisee has confidence until someone tells them they are screwed so why not keep up some semblance of industry consistency.  The outcome is generally dependent on the size of the war chest rather than it is on the righteousness-ness-ness of the argument.

If the Aus BR franchisees are waiting and happy enough after the tide goes out, are they saddened that the other AB brand franchisees might then bolster the statistically acceptable Australian franchising failure rate?  Hmmmm … why is it we ultimately speak out for number One. Given DB franchising performance in the States I wouldn’t be buying balloons just yet.

I gotta tell you this crap is a lot easier from the outside where all the little folk are imaginary and stocks and shares are really fascinating.

It’s a funny business is franchising.  Here we are back at ‘selection’ … and staying true to what you know or what you salivate over …  and then giving in totally to ‘reverse alchemy’ on a string.

Wait for the winner in major franchising disputes and ya wait forever.  Obviously DB are prepared to spend up on a PR front.  To be clear; it would seem that Dunkin Brands should be avoided but Allied Brands didn’t get franchising at all.  Great investing ….

I’m still trying to think …

Borradale is worth zip

Ray Borradale has been aware of the wide ranging dissastisfaction among B-R franchisees in Australia. He's done virtually NOTHING to "advocate for quality" with ABQ despite his being aware of the problems.

Time to step up and do something in your own back yard, Ray. Or STFU.

Boudica Lawson's picture

Worth Zip? How much are you paying him?

Ray! You didn't tell me you had a magic wand and a never ending supply of time and money!

I must have missed the memo......

I'm curious as to what Guest thinks Ray should be doing and why they think he has some kind of obligation to devote his time to ANY franchise system.

More's to the the point, when will all franchisees realise that little can be achieved on a system by system or issue by issue basis and that a holistic approach to fixing the inherent problems across the industry is the only way to achieve lasting change?

Ray helps those who help themselves, and he does so in his personal time and with his own money.

Have you offered to reimburse him his phone bill? His internet and postage costs?

Have you made a contact list of Allied Brands franchisees and begun discussions about your collective strengths and weaknesses and formed an action plan?

Have you asked your colleagues to write to their local MP?

Have you contacted the media outlets that have run the ABQ/ Dunkin' dispute story and offered them additional information or background?

Have you gotten together as a group and asked Dunkin' how they intend to handle the BR franchise in the event of a termination?

Do you actually know what result it is you are looking for?

Why you would waste time  insulting Ray and not the people at ABQ involved in this mess is beyond me.

"He's not the Messiah, He's a very naught boy...."

Pay special attention at 1 minute 30 seconds.

Ray Borradale's picture

Oh look, I have another job

Oh look, I have another job and I don’t even remember the interview. That’s #4 franchise system that thinks they sit back and relax and I run their public dispute.  From what I could make out only one person bothered to send me nasty emails with some real and some questionable interpretations and expected they become my interpretations. Aren’t I lucky.  Mr Nasty wouldn’t even take calls. Apparently I can change AB when those in the mix miss the key to making change.  I’ve told many franchisees many times that my efforts may touch their plight but that doesn’t make their direction mine.  Good luck to ya.