| Tue 8 Nov 2011, 8:15 | | TAS - Taste Holdings Limited - Acquisition of the |
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TAS - Taste Holdings Limited - Acquisition of the 8 Nov 2011
TAS
TAS
TAS - Taste Holdings Limited - Acquisition of the Fish & Chip Co.
business and further cautionary announcement
TASTE HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2000/002239/06)
JSE code: TAS ISIN: ZAE000081162
(Taste" or "the company")
ACQUISITION OF THE FISH & CHIP CO. BUSINESS AND FURTHER CAUTIONARY
ANNOUNCEMENT
1. INTRODUCTION AND EFFECTIVE DATE
Shareholders are referred to the cautionary announcement, dated 17
October 2011, and are advised that Taste, through its wholly owned
subsidiary, Buon Gusto Cuisine (Pty) Limited ("the purchaser"), has
entered into a sale of business agreement with The Traditional Fish &
Chips (Pty) Limited ("the seller") to acquire the business operated by
the seller under the name The Fish & Chip Co. ("the agreement" or "the
acquisition").
The effective date of the acquisition is 1 February 2012, or the first
business day of the month following the date upon which the last of the
suspensive conditions is fulfilled or waived, whichever is later
("effective date"). The agreement contains warranties normal for an
acquisition of this nature
2. NATURE OF THE BUSINESS OF THE FISH & CHIP CO.
The Fish & Chip Co. is one of the largest fast-food fish take-away
businesses in South Africa and arguably the country`s fastest growing
food franchise of the last decade. It currently has approximately 170
outlets, the majority of which are located in Gauteng and is expected to
have over 195 outlets and annualised system-wide sales of over R300
million on the effective date. Its core menu consists of fish, chips
and sausages and the business is characterised by low set-up and running
costs and simple in-store operations. Current sites include taxi-ranks,
small rural towns, townships, shopping malls as well as higher living
standards measure ("LSM") locations. (www.fishandchipco.co.za)
3. RATIONALE FOR THE ACQUISITION
The rationale for the acquisition is as follows:
- it provides an entry into the significant lower LSM (LSM 4-6) market
through the market leader in the fish category;
- fish is the 4th largest fast-food category, and has shown considerable
growth in the last five years;
- the Fish & Chip Co. is an established brand, has strong marketing ties
to the South African football fan base through an association with
Siphiwe Tshabalala (Bafana Bafana player) and is one of the largest
franchised chains of fish and chips outlets in South Africa;
- there is significant opportunity for expansion of the brand within
South Africa and Taste believes that it is potentially a 400-store
system in current store formats. The current footprint does not include
any meaningful penetration into the Western Cape or KwaZulu-Natal
provinces and Taste envisages significant potential for The Fish & Chip
Co. to accelerate its expansion in these coastal areas by utilising the
national property management infrastructure of Taste as well as its
established regional offices;
- as the current Fish & Chip Co. business does not manufacture any of
its own products there is substantial value to be unlocked by adding its
volume to existing Taste manufacturing capabilities;
- the acquisition will increase the number of outlets in the Taste food
division by over 40% and could increase annualised system-wide-sales in
that division to over R800 million;
-the acquisition is expected to be earnings-enhancing to Taste from the
first year of consolidation.
4. CONSIDERATION
4.1 The purchase price is R65 million, plus a maximum of R1 million of
stock on hand ("purchase price"), payable as follows:
- R45 million on the effective date;
- R10 million (less any deductions) 21 days after the effective date,
based on the warranty calculation as described in paragraph 4.2 below;
and
- R10 million (less any deductions, plus the value of stock) 60 days
after the effective date based on set-off account adjustments as
described in paragraph 4.4 below.
4.2 Warranty calculation
The purchase price will be reduced by the greater of the results of the
following two calculations:
- R11.67 for every R1 that the combined gross profit for the months of
November 2011, December 2011 and January 2012 is less than R7.2
million, and
- R450 000 for every store less than 195 trading on the day before the
effective date.
In addition, the purchase price will be reduced by R35 for every R1 that
monthly salaries and wages at the effective date exceed R350 000.
4.3 Maximum purchase price reduction
The maximum total reduction in the purchase price based on the warranty
calculation is R10 million. In the event that the warranty calculation
results in a reduction of more than R10 million, the purchaser shall
have the right to cancel the agreement, in which event, the parties
shall be restored to the status quo ante.
4.4 Set-off account adjustments
The following items will be included in the set-off account:
- amounts received / paid by one party on behalf of the other after the
effective date;
- deposits/joining fees from prospective franchisees will be due by the
seller to the purchaser;
- in addition, 40% of all trade debtors on the day immediately preceding
the effective date not collected within 55 days of the effective date
are to be deducted from the purchase price.
5. FUNDING
Taste intends to fund the purchase price through an appropriate mix of
equity and debt funding.
6. CONDITIONS PRECEDENT
The acquisition is subject, inter alia, to the fulfilment or waiver of
the following conditions precedent:
- the purchaser advising the seller in writing that it is satisfied with
the outcome of its due diligence investigation by no later than 10
December 2011;
- the approval of the acquisition by the board of directors and, if
required, the majority of shareholders of Taste, by no later than 31
January 2012;
- all other required regulatory approvals having been obtained by no
later than 31 January 2012;
- the seller providing proof to the purchaser that, as at 31 December
2011, at least 180 outlets were open and trading in South Africa and
Swaziland (of which no more than five are owned by the seller), by no
later than 5 January 2012, and the purchaser verifying same in writing
within seven days of receipt of such proof;
- the seller providing written proof to the purchaser that as at 31
December 2011, the gross profit of the business for the month of
December 2011 was not less than R2.2 million, by no later than 5 January
2012, and the purchaser verifying same in writing within seven days of
receipt of such proof; and
- the conclusion of a lease agreement between the purchaser and the
seller in respect of the premises from which The Fish & Chip Co.
business is operated, for a period of not less than four months from the
effective date, at a rental of R65 000 per month, by no later than 30
November 2011.
7. CLASSIFICATION OF THE ACQUISITION
Shareholders will be advised of the classification of the acquisition,
in terms of the JSE Limited Listings Requirements, once the funding
structure is finalised.
8. FURTHER CAUTIONARY ANNOUNCEMENT
The pro forma financial effects of the acquisition, the funding
structure as well as the classification thereof will be announced in due
course. Accordingly, shareholders are advised to continue exercising
caution when dealing in the company`s securities until such details are
announced.
Johannesburg
8 November 2011
Sponsor
Vunani Corporate Finance
Legal advisor to Taste
Mahons Attorneys
Date: 08/11/2011 07:49:33 Produced by the JSE SENS Department.
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