In
an SEC filing, Soho House said MCR won't fully fund
a $200 million equity commitment and will look for new capital source to keep deal on track.
LONDON — A proposed $2.7 billion deal to take the struggling
members-only club Soho House private is potentially in jeopardy after the company announced
that New York City-based MCR would not be able to fully fund its $200 million
commitment for the pending sale by the expected closing date.
In an S.E.C. Form 8-K filed on January 5, Soho House said as
part of the merger agreement in August, MCR Hospitality Fund IV LP and MCR
Hospitality Fund IV QP LP delivered an equity commitment letter, under which
MCR committed to purchase $200 million of shares of Soho House common stock at
$9 share, at or before the closing of the merger. According to the filing, that
money would be used to fund a portion of the consideration payable to Soho
House stockholders in connection with the merger.
Further, the Form 8-K stated that on January 5, MCR informed
Yucaipa (and the investment firm owned by Soho House executive chairman Ron
Burkle) that it would not be able to fund that amount in full at or before the
currently anticipated closing date. The filing said Yucaipa and the special
committee of the board are engaging with affiliates of MCR and other parties to
secure the $200 million.
The filing stated, “While numerous options are being
pursued, there can be no assurance that such efforts will be successful.”
Soho House said that, in the meantime, the company will
proceed with its special meeting of stockholders to adopt the merger agreement,
scheduled for January 9. The parties to the merger agreement intend to close
the merger as soon as possible following the satisfaction of the closing
conditions under the merger agreement.
Details of the deal
In August, Soho agreed to a deal to go private with MCR
Hotel, with MCR Hotel leading a group of new equity investors and the existing
shareholders rolling over their majority shares in the 46-property business.
The deal would see investors pay $9 a share for about 15% of
the Soho House & Co shares trading on the NYSE, a 17.8% premium to the
August closing price. Soho House said the deal implies an enterprise value of
about $2.7 billion, including $700 million of debt.
Funds managed by affiliates of Apollo are supporting the
transaction through a hybrid capital solution, by providing additional capital
in the form of debt and common equity. A portion of the proceeds will be used
to refinance the company’s existing senior secured notes. The Wall Street
Journal reported at the time that Apollo was expected to provide more than $700
million in equity and debt financing.
Under the new arrangement, Soho House Founder Nick Jones,
Burkle, and Yucaipa would retain a majority stake in the business, reportedly
about 75%.