... or how hedging matters to 42,000 hospitality employees. While it is not Caterer's role to explain complex financial instruments it is often inescapable that money makes the world go round as executives at M&B discovered today.
Anyone who has been through the doors of a casino has done it: bet the house on black and its comes up red. If you're lucky you've lost £20. If your name is Karim Naffah, and you were chief financial officer at Britain's largest pub company by turnover, you've lost £274m and your job.
It all goes back to that pesky Robert Tchenguiz, the investor who attempted to buy M&B back in 2006 and still holds a 22% share. He approached M&B in June when he held a 14% stake about a sale and lease back deal for a large chunk of the 2,000 properties the pub operator owns.
The deal all went wrong when the phrase "credit crunch" entered the national vocabulary and made it harder for businesses to raise cash. In what must be the biggest mistake of the combined careers of the M&B board the company took out a hedge: an investment that is taken out specifically to reduce or cancel out the risk in another investment (in this case the aborted property deal).
The financial definition of a hedge is "a strategy designed to minimize exposure to an unwanted business risk, while still allowing the business to profit from an investment activity". In this case the hedge made M&B lose more than a year's worth of profits and a great deal of investor confidence.
What this all means is a great deal of uncertainty for the 42,000 workers at M&B. Taking the hedge aside as an exceptional item notes that this is one of Britain's most successful pub operators. Hidden away in the shock of chief executive Tim Clark having his resignation refused were some pretty robust trading figures that have bucked the current downward industry trend in the pub sector. Take away the hedging and we would be talking about how successful a company M&B is.
Analysts now are dragging out the old chestnut of a proposed merger with fellow pub giant Punch Taverns - or as Tchenguiz raises his stake there is always the chance he may look to buy the company again. M&B finds itself firmly in the middle of a crossroads of its own making. An uncertain future over the ownership of one of hospitality's largest businesses is a gamble many in the industry should be wary of.
