Tupperware Brands Corp. on Tuesday said the pandemic and the measures implemented to slow the spread of COVID-19 may negatively impact its ability to repay or refinance the $600 million aggregate principal amount of 4.750% Senior Notes due on June 1, 2021. Tupperware has launched a tender offer to repurchase for cash up to $175,000,000 aggregate principal amount of the Notes. Noteholders will receive $450 for each $1,000 principal amount of the Notes if tendered by June 8. Those who tender their Notes after June 8 will only receive $420 per $1,000 principal amount of Notes. The Tender Offer expires June 22.
According to Tupperware, COVID-19, which has been declared by the World Health Organization to be a “pandemic,” is negatively impacting worldwide economic activity. Many governments have implemented policies intended to stop or slow the further spread of the disease, such as shelter-in-place orders, resulting in the temporary closure of schools and non-essential businesses, and these measures may remain in place for a significant period of time. COVID-19 has impacted geographic areas in which the Company has operations, including China, where the Company has a manufacturing facility and generated over $200 million in sales in 2019. The Company has experienced and may continue to experience disruptions that prevent it from meeting the demands of its sales force and customers, including disruptions to the manufacturing of its products and its supply chain, disruptions to its distribution network, disruptions in or restrictions on the ability of its employees, contractors, sales force and other business partners to work effectively and disruptions to the shipment of its products.
“The COVID-19 pandemic and measures implemented to slow the spread of COVID-19 may negatively impact the Company’s ability to repay or refinance the $600 million aggregate principal amount of the Notes due on June 1, 2021. The extent to which the COVID-19 pandemic ultimately impacts the Company’s ability to repay or refinance the Notes will depend on future developments, which are highly uncertain and cannot be predicted. The impact of COVID-19 and measures implemented to slow the spread could also cause delay in, or limit the ability of, the Company’s sales force to make timely payments to the Company. In addition, the pandemic has resulted in a widespread health crisis that is adversely affecting the economies and financial markets of many countries. During the COVID-19 pandemic and even after it has subsided, the Company may continue to experience adverse impacts to the Company’s business as a result of the pandemic’s global economic impact, including any recession, economic downturn, government spending cuts, tightening of credit markets or increased unemployment that has occurred or may occur in the future, which could cause the Company’s ultimate customers and potential customers to postpone or reduce spending on its products or put downward pressure on prices. The Company’s top priority is to protect its employees and their families, the sales force and consumers, and its operations from any adverse impacts. The Company is taking precautionary measures as directed by health authorities and local governments.”
“Individually and collectively, the consequences of the COVID-19 pandemic have adversely impacted and could continue to adversely impact the Company’s business, financial condition, results of operations, cash flows and liquidity. The Company estimates that the COVID-19 pandemic may have a negative impact of over $100 million on net sales for the fiscal year 2020 with more than 80% of the impact expected in the first half of the year.”
Tupperware has taken certain measures to address the impacts of COVID-19. These measures are designed to enhance its liquidity position, provide additional financial flexibility and maintain forecasted financial covenant compliance, and include reductions in discretionary spending, revisiting investment strategies, and reducing payroll costs, including through organizational redesign, employee furloughs and permanent reductions. Additionally, during the beginning of the second quarter of 2020, on March 30, 2020, the Company drew down $225 million under its Second Amended and Restated Credit Agreement, dated as of March 29, 2019 (as amended, supplemented or otherwise modified, the “Credit Agreement”), $175 million of which was drawn as a proactive measure given the uncertain environment resulting from the COVID-19 pandemic. Further, the Company continues to take swift actions to strengthen its business and navigate the uncertainties of COVID-19, including accelerating its 2020 Turnaround Plan (as defined below) net cost savings and profitability improvements target from $75 million to $150 million. The extent to which the COVID-19 pandemic ultimately impacts the Company’s business, financial condition, results of operations, cash flows, and liquidity may differ from management’s current estimates due to inherent uncertainties regarding the duration and further spread of the outbreak, its severity, actions taken to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. The extent to which the COVID-19 pandemic adversely affects the Company’s business, financial condition, results of operations, cash flows and liquidity, may also have the effect of heightening many of the other risks described in this section, such as those relating to the Company’s level of indebtedness and its ability to comply with the financial covenants contained in the agreements that govern the its indebtedness.
The Company has warned it may not realize anticipated savings or benefits from its Turnaround Plan.
In January 2019, the Company announced its transformation program (Global Growth Strategy initiatives), which was re-assessed in December 2019. The Turnaround Plan was launched with the focus to drive innovation, sales force engagement and consumer experiences through a contemporized and streamlined service model. Since the inception of the Turnaround Plan, a reassessment of costs and priorities has occurred with a shift from a segment to a global focus with increased emphasis on procurement, sourcing and organizational realignment. The Turnaround Plan is expected to run through 2021 and incur approximately $50 million in pretax cost, with 100 percent paid in cash. Once fully executed, the Turnaround Plan is expected to enable annual local currency sales growth and to generate approximately $200 million in annualized gross cost savings and profitability improvements. There can be no assurance that the Company will realize the anticipated local currency sales growth, cost savings or profitability improvements.
“As the Company works to complete the Turnaround Plan, it may not realize anticipated savings or benefits from one or more of the various restructuring and cost-savings programs undertaken as part of these efforts in full or in part or within the time periods expected,” Tupperware said. “It also may not realize the increase in sales intended to be enabled by the Turnaround Plan. The Company’s ability to improve its operating results depends upon a significant number of factors, some of which are beyond its control. Other events and circumstances, such as financial and strategic difficulties and delays or unexpected costs, including the impacts of COVID-19, foreign currency and inflationary pressures, may occur which could result in not realizing targets or in offsetting the financial benefits of reaching those targets. Reaching those targets may also depend on the level of acceptance by the Company’s sales force of its compensation initiatives. If the Company is unable to realize the anticipated savings or benefits, or otherwise fails to complete the Turnaround Plan, the business may be adversely affected. In addition, any plans to invest these savings and benefits ahead of future growth means that such costs will be incurred whether or not these savings and benefits are realized. The Company is also subject to the risks of labor unrest, negative publicity and business disruption in connection with the Turnaround Plan, and the failure to realize anticipated savings or benefits from the Turnaround Plan could have a material adverse effect on the Company’s business, prospects, financial condition, liquidity, results of operations and cash flows.”
Tupperware also reported that on May 20, 2020, its board of directors approved a definitive purchase and sale agreement with O’Connor Management LLC, whereby O’Connor will purchase approximately 740 acres of the Company’s property in Orlando, Florida, inclusive of 500 acres of wetlands, comprising all remaining Company-owned land in Orlando. The Purchase and Sale Agreement provides for a purchase price of approximately $87 million for the land and certain transportation impact fee credits, with the transaction closing expected to occur in the second quarter of 2020, subject to successful due diligence and standard closing conditions.
As part of this transaction, the Company will lease back from O’Connor approximately 61 acres and 8 buildings on the land, comprising the Company’s headquarters location, for an initial term of 10 years at a market competitive rent and with customary terms and conditions. The Company can make no assurances that the transaction will close, that it will close in the second quarter of 2020, or that it will close at the price listed.