Covid-19 shaves off about US$6m from Burger King SA sale deal by Grand Parade

SOUTH AFRICA – Grand Parade Investments (GPI), the master franchise holder for Burger King in South Africa has announced the renegotiation of its terms of sale for its interest in Burger King South Africa (BKSA) and Grand Foods Meat Plant (GFMP) to private equity group, Emerging Capital Partners (ECP).

Under the revised offer, the enterprise value for the transactions has fallen to R593 million (US$35.3m), split into R570 million (US$33.9m) for Burger King SA and R23 million (US$1.3m) for Grand Foods Meat Plant, reports Fin 24.

This represents a 15% discount on the initial offer of R670 million (US$40m) for BKSA and R27 million (US$1.6m) for GFMP.

According to a statement issued by GPI, the decision to renegotiate the deal was due to the impact that the Covid-19 pandemic and related lockdown had on the business.

The deal has been renegotiated on a cash basis with no earnings warranties, as opposed to the initial offer which was subject to an earnings warranty for the 2020 financial year.

“Although the current offer is a 15% discount to the initial offer, we feel that the discount is fair given the additional risk and uncertainty caused by the Covid-19 pandemic,” said GPI CEO Mohsin Tajbhai.

“The current deal equates to over R1/share in value to GPI shareholders and is in line with GPI’s strategy to unlock value through a controlled sale of assets. The conclusion of the sale will allow GPI to reduce gearing and return capital to shareholders through a special dividend.”

Paul Maasdorp, managing director and partner at ECP, says the group’s ambition remains the same, namely bringing Burger King products closer to consumers and local communities in South Africa while enabling the brand to grow in terms of employment and product offering.

The move to sell the business is 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.

Tongaat Hulett is another food business company in South Africa whose business sale deal has been affected by the COVID-19 pandemic.

Tongaat 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.

Barloworld felt that the effects of Covid-19 were likely to negatively impact the business and result in material adverse changes.

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