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VTL Group Seeks Buyer After Financing Subsidiary Folds

Posted On: 9/17/2007

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AUCKLAND, New Zealand (September 2007) -- Global vending machine franchisor VTL Group Ltd. reportedly is seeking a buyer after Nathans Finance New Zealand Ltd., a finance company wholly owned by the publicly traded VTL Group, went into receivership. Nathans owed about $103.5 million to 6,000 investors, according to reports published by the New Zealand Herald here.

VTL came under scrutiny when it announced in July that it had reached a deal to sell its U.S. vending business assets, the published reports said.

New Zealand's Registrar of Companies declared the company to be "at risk," required Nathans to place all investment money it received in a trust fund, and ordered VTL to not move any funds without the registrar's approval.

New Zealand's Securities Commission is reported to be investigating the collapse, and The New Zealand Stock Exchange has suspended trading in shares of VTL Group Ltd.

Since Nathan's Finance entered receivership, the vending company reportedly has agreed with the appointed receivers, PricewaterhouseCoopers partners John Waller and Colin McCloy, to attempt to sell all or part of its businesses, including its 24seven and Shop24 brands, as well as its proprietary vending management software and franchise business system, in order to preserve value for investors.

Shop24 is an automated convenience store, and 24seven is a franchising system that enables franchisees to purchase established vending routes in major U.S. markets. Both enterprises make use of VTL's proprietary technology to monitor machines from a central station and enable cashless payments when appropriate.

VTL Group told the news media that it has completed funding arrangements to keep its vending and related businesses operational, pending a sale that would allow the franchisor to continue to operate through such brands as Shop24 and 24seven in Australia, Texas and California.

VTL chairman Gary Stevens said it was in "early days" regarding the sale process, as directors try to work out the underlying value of the businesses.

The majority of the funds raised by Nathans Finance reportedly were lent to VTL Group, but VTL has had trouble repaying its loans and owed Nathans Finance about $110 million, which was due to be repaid by June 30.

According to the Herald, VTL announced on June 8 a change in its reporting date, from June 30 to August 31, thus delaying the release of its financial report by two months.

In July, the vending concern announced that it had reached a deal to sell its 24 seven, Universal Vending Management and Nor Cal business in the U.S. to Bacon Whitney for $67.5 million through a complex transaction that, in effect, would make VTL the majority owner of the buyer. The New Zealand media reported that, under the terms of the deal, VTL also would surrender its 17% stake in Service America, one of the nation's largest independent vending companies, to a party designated by Bacon Whitney.

The proposed sale, however, would allow VTL to franchise its 24seven operations outside North America and continue to supply technology services to Bacon Whitney. VTL also would retain ownership of Shop24 and the right to license technology to non-franchise vending businesses in North America.

The deal reportedly came under scrutiny because Bacon Whitney was created by Halpern Denny, which is also a part owner of Service America. Bacon Whitney would buy the franchise vending assets from Service America, but not its direct vending business.

Adding further complexity to the proposed sale was the fact that John Halpern and George Denny III -- founders of Boston-based investment firm Halpern, Denny & Co. -- each hold a personal interest in VTL of 9.95%.

Louise Edwards, chief executive of Perpetual Trust, trustee for the debenture stock issued by Nathans Finance, said the firm initially was advised that the transaction would result in a significant cash injection for VTL, "effectively reducing Nathans' loan portfolio exposure to VTL and boosting the company's financial position. But in reality, Bacon Whitney was providing VTL a convertible note to purchase the U.S. assets, not cash, and that Nathans would be funding that transaction," according to the Herald.