Beleaguered franchise brand manager Allied Brands says it has managed to stop an attempt by US franchise giant Dunkin Brands to terminate Allied’s master franchise agreement for ice-cream chain Baskin Robbins, but the dispute between the two parties is continuing.
Allied put it shares in a trading halt on September 10 after receiving a letter from Dunkin Brands “purporting to terminate the rights of Allied Brands to continue to franchise and distribute for the Baskin Robbins brand.”
Allied says that after discussions between the two companies and their lawyers, Dunkin has decided not to “action this purported termination” but has reserved its right to do so.
“Further discussions are currently taking place between the parties and the market will be informed of further developments,” Allied Brands acting chief executive Sean Corbin said in a statement released to the ASX this morning.
“Until such time as these [discussions] are completed Allied Brands continues to control and distribute to the franchise network in Australia.”
Corbin also moved to reassure investors that Allied will fight any attempt to terminate its Baskin Robbins agreement.
“Allied Brands disputes the grounds of the purported termination and will defend strongly its position if a resolution cannot be reached.”
What has sparked the dispute remains unclear, although Allied’s poor recent performance means it is now in breach of its banking covenants. Breaching reviews can trigger a review in many agreements.
Corbin was contacted for comment but was not available prior to publication.
Dunkin Brands said in a short statement that is was “aware of the challenges faced by Allied Brands”.
“Dunkin Brands has been in discussions with Allied Brands regarding a variety of issues and remains committed to the Australian market and sees strong opportunities for continued growth in the future.”
The loss of the Baskin Robbins brand would be a bitter blow for Allied Brands and would raise further questions over the company’s future.
The company’s financial statements for the 2009-10 year shows Baskin Robbins accounted for 25% of the group’s total revenue, although the brand did post a net loss of $1.7 million.
Allied, which slumped to a $35 million loss in 2009-10, is in the process of selling a number of its brands, including Awesome Water, and retail chain Villa & Hut, which is subject of a management buyout proposal from founder Franz Madlener.
If these two asset sales are completed as planned then Allied Brands, which also shut its Awesome Entertainment business last financial year, would be left with the Cookie Man and poorly-performing Kenny’s Cardology brands, which had combined revenue of $17.5 million in 2009-10.
In other words, 65% of the company’s 2009-10 revenue base would be gone.
The company also revealed this morning that it is preparing documentation shareholders share purchase plan and a share placement to sophisticated investors (classed as investors with over $500,000 to invest) to help shore up the company’s balance sheet.
However, these capital raising measures are subject to the resolution of the Dunkin Brands dispute.
Allied Brands says it will update the market on September 21.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
