COVID-19 pandemic causes a setback on Grand Parade disposal of Burger King

SOUTH AFRICA – Grand Parade Investments, which recently announced the sale of its SA Burger King licence, has revealed that the terms of the sale of the food franchise was being renegotiated due to the COVID-19 pandemic.

In a shareholder statement the group stated, “as a result of the Covid-19 pandemic, the parties are renegotiating the terms and conditions of the disposal,” and that shareholders will be updated if renegotiations are successful without going into further detail.

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Prior to the nationwide lockdown, Burger King reported a challenging operating environment, but talked up its successes and turn to profitability despite this.

However, under the South Africa lockdown, which has now been in effect at high levels for eight weeks, the quick service restaurant has not been able to operate at full capacity, reports Business Live.

At the start of May 2020, restaurants were allowed to open for delivery only, however, due to the “poor financial viability of only offering a home delivery service”, only a limited number of Burger King Outlets provided the service.

In February GPI revealed that it is set to sell its 95.36 percent stake in Burger King franchise for R697 million (US$46.53 million) and all of Grand Foods Meat Plant, a GPI owned burger patties production plant R27 million (US$1.5m) to ECP Africa Fund.

The move to sell the business was part of GPI’s plans to focus on operations that could unlock value for shareholders and become a pure investment company.

Over the last 2 years the company has undergone a process of restructuring the business with the main aim of reducing the discount to iNAV (indicative net asset value). This process involved discontinuing loss making business and improving the profitability of its operational food and manufacturing businesses.

In regard to this, GPI approved sell of its remaining 30% stake in Sun Slots for more than R500 million (US$34.3m) having exited Dunkin Donuts and Baskin-Robbins earlier last year, as well as disposing of its stake in Spur.

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Due to the impact of the COVID-19 pandemic, Struggling sugar producer, Tongaat Hulett has also been met by setback on the sale of its 100-year-old starch business to KLL Group for R5.35billion (US$342.6m), with the company wanting an out of the deal on grounds that the Covid-19 pandemic has affected the commercial merits of the deal.

Tongaat had announced in February that it would be selling its starch business to the subsidiary of logistics company Barloworld in an effort to reduce its debt and cover on-going operations.

Barloworld has since triggered a material change clause — a rarely invoked clause in mergers and acquisitions that allows buyers to withdraw from deals if the value of the transaction has been undermined by a significant development.

In a statement, the country’s largest sugar producer said the Barloworld felt that the effects of Covid-19 were likely to negatively impact the business and result in material adverse changes.

However, Tongaat is not convinced that any material adverse changes had occurred, with its CEO Gavin Hudson saying the matter “would be referred for arbitration if both parties fail to reach common ground on the matter.”

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