Villa & Hut founder Franz Madlener tries to buy back chain from struggling Allied Brands

The founder of franchise chain Villa & Hut, Franz Madlener, is trying to buy his company back from current owner Allied Brands, which shocked the market by announcing its second profit warning in six months last week.

Madlener was forced to sell Villa & Hut to Allied Brands in June 2009 for $2.8 million, after he was unable to roll over the chain’s bank funding facility.

He has remained in charge of the chain operations since the sale but is believed to have been considering ways to buy back the business since Allied Brands revealed the dire state of its finances in June.

“My absolute key motivator is what’s best for the brand. The brand is entering its 12th year, with a really strong franchise network and has very good credibility, particularly in Victoria,” Madlener told SmartCompany today.

“If we can get it back into privately-owned hands and focussed on its strengths, it should be able to continue to growth strongly.”

“I think Allied Brands acquired it with the best intentions, but their own current position doesn’t enable them to deliver on what the brand is capable of doing at the moment. To their absolute credit, they are doing what’s best for the brand in this instance.”

Allied Brands, which operates franchised chains including Villa & Hut, the ice cream chain Baskin-Robbins, food chain Cookie Man, stationery group Kenny’s Cardiology, and Awesome Water and Awesome Entertainment, revealed on Friday that writedowns for the 2009-10 financial year will now be as high as $32 million, after earlier being put at $13-15 million.

The company has also announced it will be forced to close 14 of its 230 stores across its networks, and has already closed the Awesome Entertainment business.

However, acting chief Sean Corbin has hit back at suggestions that Allied Brands has “nothing left” and says hard decisions have been necessary after the sacking of former chief Shane Radbone six weeks ago.

“The reality is there are 14 stores being closed out of 230-odd,” he told SmartCompany this morning.

“We have to have a look at these business units and my take on it all is that there is no use running business units that don’t make any money.”

Nearly every business in the group is struggling, except for Baskin-Robbins.

Corbin says the Cookie Man chain will make money this year, but has been struggling and needs to be “reinvigorated”.

Allied has been attempting to sell the Kenny’s Cardiology brand, but a lack of suitable buyers means Corbin has decided to try and fix the chain with a view to selling it in the medium-term.

The Awesome Entertainment business has been shut, while Corbin is also examining options for Awesome Water, which remains caught in what Corbin describes as an onerous deal with a third party finance company.

“This year the finance company will make $1.8 million [from Awesome Water] and Awesome will make nothing,” he says.

Corbin would not comment on the management buyout for Villa & Hut, but claims there are also other parties interested in the business.

“We have also been approached by other parties along the way and we are looking at all of our options.”

Corbin says among Villa & Hut’s recent problems was a deal signed in November 2009 with a Steinhoff Asia Pacific Limited, to transfer ownership and rebrand 13 Freedom Home & Cafe and Bayswiss stores as Villa & Hut stores.

Corbin says an agreement that would have seen one franchisee take on seven of the stores has fallen through and the stores have performed poorly.

“I will make no secret of the fact those stores haven’t performed for us. They have lost money. We thought we had an agreement to franchise a whole heap of them, but that didn’t eventuate.”

Corbin refused to speculate on when a deal would be done with Madlener, saying Allied Brands needed to look at any buyer very closely.

“Obviously I am not going to give it to someone who can’t afford to run it for more than a month,” he says.

However, Madlener says while he is only in the early stages of working on finance for deal, he is confident most members of management will contribute.

“It’s very early days, but it’s something that a significant amount of the management team wants to get involved in, so it may not be that hard. Everybody in the management team is committed to this.”

Sources within the Villa & Hut franchisee network suggest support for the management buyout is strong and there has been some dissatisfaction with Allied’s level of support for the brand.

With so much of the company up for sale, Corbin admits that within six months Allied Brands could only include the Baskin-Robbins and Cookie Man chains.

“Baskin-Robbins has a lot of legs left in Australia and perhaps we haven’t done justice on that. My focus will be on doing justice to the brand, particularly in the southern states where our market penetrations has been poor,” he says.

“A streamlined Allied Brands concentrating on those core brands is far better than an Allied Brands diverted all over the place.”

“If we get that right, we can come out of what is a very deep, dark, hole at the moment.”

Allied Brands also remains in breach of its lending arrangements with its lenders, as was announced in June. But Corbin does not believe his lenders will take the drastic step of appointing receivers.

“Not at this stage. At this stage I am reasonably comfortable that we will proceed as is.”

“If [the lenders] were going to take ferocious action, I thought they would have done so.”

Allied Brands shares have now fallen from 15c to 3.8c over the last 12 months. The company now has a market capitalisation of $7.9 million.