How much is this “asset” worth in 2025 at the end of the current agreement? Something close to zero I think. Book value of shop fitout would be (should be) close to zero, and the VTG leases should be close to expiry. Don’t expect a great deal of store capex or infrastructure spend by VTG between now and 2025, so the stores will start to look a bit run down by 2025. Employee termination costs would be significant. I don’t see too many chips in MH’s corner here.
I expect TLS to drive a hard bargain here as I have covered previously.
The maximum TLS will pay will be the lesser of (a) the NPV of the future cash flows relative to the VTG generated business between now and 2025 (b) and the current cost to terminate the agreement early.
This is a textbook example of the massive risk that exists when a business is heavily reliant on a single customer or supplier relationship, worsened when that customer or supplier is a gorilla like TLS.
I do agree with Volcano in that the best thing that can happen here is for MH to take it private and buy out the other shareholders so she can waste her own money on the skin clinics rather than wasting her money + other shareholders money. If MH really believed in the skin clinic business she would do exactly this, but I’ll be surprised if she does.
