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Last month the chief executive of Morgan Sindall revealed that the smallest amount of cash the contractor has had in the bank over the past two years has been 拢25m, on one day last September. 

鈥淭here is a lot of talk about the construction model being bust,鈥� John Morgan went on. 鈥淚t鈥檚 not bust but you need balance sheets to be strong so you make the right decisions in the medium to long term.鈥� 

His counterpart at Interserve, Debbie White, must look enviously on and no doubt agree. A trained accountant, the 56-year-old had kept a low profile 鈥� until last weekend 鈥� since she took over from Adrian Ringrose more than 18 months ago, having spent the previous 13 years at French FM company Sodexo prior to her arrival at Interserve in September 2017. 

鈥淸Not backing interserve鈥檚 own plan would] risk an outcome in which there is no return to shareholders, including Coltrane鈥�

Glyn Barker, Interserve

Then in newspaper interviews on Sunday, White, and her chairman Glyn Barber, went on the offensive to sell the benefits of its rescue package which has stirred up so much opposition in its biggest shareholder 鈥� opposition which, White says, could force Interserve into administration if it is not passed.

White has been hobbled by a rising debt level 鈥� turbo-charged by Ringrose鈥檚 disastrous foray into the energy-from-waste (EfW) sector, which has so far burned through 拢230m. Dwindling confidence within the industry 鈥� and among investors 鈥� in Interserve鈥檚 ability to carry out work and survive hasn鈥檛 made her job any easier either.

鈥淚t鈥檚 been relentless since I joined,鈥� she told the Sunday Times. 鈥淚t鈥檚 been the most challenging time in my career.鈥�

White has been fire-fighting since day one, cutting back overheads through an initiative called Fit for Growth, selling off or closing down divisions such as the group鈥檚 power business and pulling out of certain sectors such as the London construction market.

鈥淢anagement would have us believe that its largest shareholder, Coltrane, is gambling dangerously with Interserve鈥檚 very existence鈥�

Kevin Cammack, Cenkos

Last month, when unveiling its 2018 results 鈥� Interserve went against convention and published the figures without announcing in advance that it would do so 鈥� the firm for the first time publicly admitted its business, in this case its UK construction arm, was having difficulty winning work 鈥渁s the group鈥檚 financial position started to impact its ability to successfully win contracts鈥�.

In other words, there are too many clients out there that don鈥檛 trust them to be around to complete the job.

It is against this backdrop that White and her board face their Waterloo this Friday when a proposal to rescue the company 鈥� the second in less than a year 鈥� is put to the firm鈥檚 long-suffering shareholders, who have seen their stakes in the company shredded. 

But that isn鈥檛 the only rescue plan on the table: and which one shareholders opt for could determine the future of the company, or even whether it has one at all. What should they do? 

How the two rescue deals compare:

	Interserve鈥檚 plan with lender support	Shareholder Coltrane鈥檚 latest proposal
Debt-for-equity swap with lenders	拢435m debt swapped for 95% equity	拢435m debt swapped for 55% equity
Equity to be held by existing shareholders	5%	7.5%
Equity to be distributed through rights issue	None	37.5% 鈥� offered to shareholders on pro rata basis

Interserve鈥檚 plan or Coltrane鈥檚?

At the meeting, shareholders will vote on whether to back the board鈥檚 rescue plan. If they don鈥檛, a rival one stitched together by a US hedge fund called Coltrane Asset Management lurks in the wings, even though it has been rejected by Interserve itself and won鈥檛 be voted on. Both involve swapping 拢435m of debt for equity. Interserve鈥檚 plan would leave shareholders with 5% of the business 鈥� the remainder would be held by creditors 鈥� which is double what shareholders like Coltrane were originally told they would get when the firm first put out its rescue plan early last month.

But under its plan, Coltrane, which owns a 27% stake in the contractor, wants creditors to take just 55% of equity in Interserve. Shareholders would hold on to a 7.5% stake in the firm, with a further 37.5% equity in Interserve created through a 拢110m rights issue 鈥� which Coltrane has offered to fully underwrite. 

Coltrane say the offer of an underwritten rights issue provides Interserve鈥檚 management with a way to raise cash and stave off a liquidity crisis, removing the threat from creditors to plunge the contractor into administration.

Shareholders are under pressure to make the right choice because of the threat of administration hovering in the background. White confirmed accounting firm EY has been lined up to handle any administration with a new, unlisted company emerging next Monday. Interserve鈥檚 message to those wondering whether to put their cross next to Interserve鈥檚 proposal is this: not backing it could risk the firm going under.

Barker told the Sunday Telegraph: 鈥淚f we lose, we run out of liquidity. People shouldn鈥檛 assume that there are months or even weeks [left] without additional borrowing facilities.鈥�

Last week, he said that not backing Interserve鈥檚 own rescue plan 鈥渞isk[s] an outcome in which there is no return to shareholders, including Coltrane, and considerable disruption to the business鈥�.

A scenario with no return to shareholders can mean only one thing 鈥� the firm going under. Cenkos analyst Kevin Cammack says: 鈥淸This] is fast becoming a game of Russian roulette rather than poker.鈥�  

But he adds: 鈥淓ven the threat of administration is not proving sufficient to galvanise shareholders into supporting the company鈥檚 plan, and the vote might be a closer-run thing than normal logic would suggest.鈥�

A source close to Coltrane says Cammack is right that the vote will be a close-run thing. 鈥淚t鈥檚 hard to see how the management鈥檚 deleveraging plan will pass at the moment,鈥� he says. 鈥淪hareholders with 33% of the stock are saying they will vote against the proposal, and around 33% of Interserve鈥檚 shareholders are retail investors, who do not typically turn up to vote in meetings.鈥�

Coltrane is believed to have the support of another hedge fund, Amsterdam-based Farringdon Capital, giving it that 33% figure, and Cammack says: 鈥淚t is not unreasonable to assume some wider support will be garnered from both institutions and the private investor base.鈥�

Preserving value and securing jobs

Interserve has so far stuck to the line that its plan is the one worth backing. Its chair, Barker, says: 鈥淚t is the only plan today that provides a certain future for Interserve, preserving some value for shareholders while securing jobs, pensions and continuity of services.鈥�

Coltrane says it has been 鈥渄isappointed鈥� by Interserve rebuffing its plan, claiming that the company鈥檚 board members 鈥� whom, incidentally, it wants to get rid of bar White 鈥� are not taking their responsibilities seriously.

The source adds: 鈥淲e have made clear to the company our desire for constructive discussions and a consensual outcome. The board have a duty to consider it, which they are currently failing to fulfil.

鈥淭he only way to achieve a consensual outcome is for the board to take their responsibilities seriously and engage with us on our manifestly better proposal.鈥�

Coltrane鈥檚 anger 鈥� it has reportedly fired off letters to the board warning it is considering legal action over what it says are issues over disclosure and allegations that it has unfairly favoured lenders over shareholders 鈥� at what is being proposed by Interserve鈥檚 board shows no signs of abating, and Cammack says the battle is turning out to be a match between 鈥渋mpoverished equity interests versus greedy debt providers鈥�. He adds: 鈥淭he gloves are well and truly off now.鈥�

Interserve last night confirmed it has been in discussion with Coltrane about under which circumstances Coltrane would back it, though it has denied reports that it is preparing a last-ditch sweetener to try to win over shareholders. But Coltrane shows no sign of backing down. A source close to the firm says: 鈥淭he fact that they are having to do so [speak to Coltrane] reflects their failure to secure the support of enough holders of the other 72% of the company鈥檚 shares.鈥� He adds: 鈥淲e haven鈥檛 seen anything from the company that materially changes matters.鈥�

Shareholder anger

In a briefing note about why shareholders should back its rival plan, Coltrane gave some insight into why it has so readily become a rebel shareholder. 鈥淭hroughout this process, the board has prioritised discussions with lenders rather than shareholders, limiting the company鈥檚 options and reducing the scope for a solution that addresses the interests of all stakeholders.鈥�

It adds: 鈥淸Our proposal] will also put the company [Interserve] in the position it would have been had [it] approached Coltrane for a solution first.

鈥淭he Coltrane proposal is intended to be delivered on a consensual basis, and is the only plan that can be.鈥� Pointedly, it makes a reference to the millions of pounds that are expected to be lavished on Interserve鈥檚 deleveraging plan, saying of its own plan that 鈥渋t has been developed by Coltrane and its advisers without any funding from the company 鈥� despite [Interserve] anticipating expenditure of c拢90m on its and its creditors鈥� advisers to implement its proposal, which would leave the company in a poorer financial condition鈥�.

It鈥檚 clear Coltrane thinks there has been nothing consensual about the process so far, a point with which Cammack has some sympathy. 鈥淭here is no such thing as a winner in this horror story but if any can claim that dubious prize then [it is] the lending group [made up of six lenders including hedge funds and the HSBC, RBS and BNP Paribas banks] that dictated terms of the recently proposed restructuring.鈥�

He adds: 鈥淢anagement would have us believe that its largest shareholder, Coltrane, is gambling dangerously with Interserve鈥檚 very existence but the US fund would argue that it is gambling on Interserve鈥檚 preservation with a better balance sheet and crucially more equity retained by existing shareholders.鈥�

Is Interserve worth saving?

What, though, are they fighting for? In short, is Interserve worth it? Behind the headlines about thumping losses and the eye-watering amounts the firm has blown on restructuring costs and getting its finances in order, Interserve says there are some positives.

Last year鈥檚 pre-tax loss of 拢111m was actually an improvement 鈥� the year before it had racked up a 拢244m loss. It is starting to get its problem EfW schemes off its books 鈥� another one at Rotherham was handed over last week 鈥� and it has a pipeline of work worth 拢7.1bn. Meanwhile its support services arm, the biggest part of its business, hiked operating profit one-third last year, while underlying margins at the entire group now stand at 3.2%. And White鈥檚 Fit for Growth programme turned in savings of 拢20m last year and is predicted to produce savings of 拢40m-拢50m by 2021. 

But against these defences are trained some pretty big guns. That 拢111m loss is still a thumping one, the firm has yet to hand over its most problematic EfW scheme 鈥� one in Derby that last year managed to attract a complaint from the public every 36 hours and accounted for the bulk of the 拢12.6m loss EfW racked up for Interserve in 2018 鈥� while it is still to settle the final account with the client, Viridor, on an EfW scheme in Glasgow that it was kicked off back in November 2016.

Viridor says Interserve owes it 拢64m but in its results, Interserve said: 鈥淪ince the year end Viridor has submitted a draft termination account to Interserve significantly in excess of this receivable. The directors believe this has no technical merit.鈥� Interserve said its liability will be no more than 拢71m. When contacted by 好色先生TV, Viridor鈥檚 parent, Pennon Group, declined to give details of what this 鈥渟ignificant鈥� increase was. 

Interserve said it was also suffering from 鈥渋ncremental exceptional costs on a number of construction projects鈥� while it added that it was having difficulty getting paid on some jobs in the Middle East. Its normally reliable RMD equipment services business turned in a weaker set of numbers last year, with revenue slipping 15% to 拢196m and operating profit falling 27% to just under 拢40m.

Shareholders, Cammack says, are facing an 鈥渆ver-changing, desperate situation鈥�. He adds: 鈥淭hink I鈥檇 rather sit this one out.鈥�

Just how many shareholders choose to do so on Friday could well decide the fate of a company that employs 68,000 people across the glob