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TASTE HOLDINGS LIMITED - Taste raises R180 million for further growth declaration announcement in respect of the Taste rights offer

Release Date: 28/08/2014 08:00
Code(s): TAS     PDF:  
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Taste raises R180 million for further growth declaration announcement in respect of the Taste rights offer

TASTE HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number 2000/002239/06)
Share code: TAS ISIN: ZAE000081162
(“Taste” or “the Company” or “the Group”)


TASTE RAISES R180 MILLION FOR FURTHER GROWTH
DECLARATION ANNOUNCEMENT IN RESPECT OF THE TASTE RIGHTS OFFER


1.   INTRODUCTION
     Taste is pleased to announce that it intends to raise R180 157 542 by way of a
     renounceable rights offer (“Rights Offer”) and advises Shareholders that it has already
     been provided with irrevocable commitments from 59.4% of existing key Shareholders to
     follow all of their rights in terms of the Rights Offer and to subscribe for all the ordinary
     shares in Taste (“Shares”) to which they are entitled. In addition, certain of these
     Shareholders have provided further irrevocable commitments that, to the extent that the
     remaining Shareholders do not follow their rights in terms of the Rights Offer, these existing
     key Shareholders will take up a further 41.1% of the Rights Offer Shares by way of Excess
     Applications. Accordingly, the entire capital amount intended to be raised has been
     irrevocably secured from existing Shareholders and therefore, no underwriter is required.
    
     During July 2014, Taste registered a R1 billion Domestic Medium Term Note (“DMTN”)
     programme. On 30 July 2014, in its inaugural issue under this programme, notes were
     issued in aggregate of R125 million. The capital to be raised in terms of the Rights Offer is
     therefore complementary to Taste’s access to debt facilities in terms of the R1 billion DMTN
     programme.

     In terms of the Rights Offer, Taste will offer a total of 60 052 514 new Shares (“Rights
     Offer Shares”) at a subscription price of 300 cents per Rights Offer Share (“Subscription
     Price”) in the ratio of 29.20 Rights Offer Shares for every 100 Shares held at the close of
     business on the record date for the Rights Offer, being Friday, 12 September 2014
     (“Record Date”).


2.   PURPOSE OF THE RIGHTS OFFER
     The purpose of the Rights Offer is to provide Taste with additional capital in the amount of
     R180 157 542 so as to realise the opportunities of:

      - leveraging the exclusive Domino’s Pizza licence it acquired in April 2014 for seven
        African countries thereby capitalising on the fast growing Southern African pizza market
        with the world leading Pizza Delivery Brand;

      - pursuing acquisitions in line with its stated strategy in the Quick Service Restaurant
        (“QSR”) segment that serves emerging middle income (LSM 4-6) consumers,
        complementing its existing The Fish & Chip Co. and Zebro’s Chicken brands; and

      - continuing to invest in corporate store ownership of NWJ outlets.


3.   PROSPECTS
     Taste has historically been cautious in its future outlook, especially with regard to
     forecasting factors beyond its direct control. While sales in Taste’s two pizza brands have
     shown continued positive sales growth during the current year, demand among lower
     income consumers remains weak and it is anticipated that this will continue through the
     2015 financial year, potentially offsetting gains made in the pizza division. With regard to
     those factors within its control, the Group is encouraged by the medium and long-term
     benefits the Domino’s Pizza roll-out and conversion will bring. As communicated in prior
     announcements, this will however require initial once-off costs relating to the store
     conversions, establishment of a centralised dough production facility; and initial training and
     marketing. The decision was also taken not to open new Scooters Pizza or St Elmo’s
     outlets, impacting comparability against prior periods.

     As the costs associated with Domino’s Pizza relate to the investment in Domino’s, the Group
     excludes such costs from reported Core earnings. Core earnings more accurately reflects
     the comparable performance of the underlying business. For the six months ending 31
     August 2014 (“the current period”), Core earnings excludes Domino’s Pizza related costs
     and take into account normalising the prior years’ pizza division profit from store openings
     that occurred in the six months ended 31 August 2013 (“the prior period”), as the decision
     was taken not to open new Scooters Pizza or St Elmo’s outlets in the current period.

     Core EBITDA for the current period is expected to be R1.2 million to R1.7 million higher than
     the prior period. Core headline earnings for the current period is estimated to be between
     R1.0 million and R1.5 million less than the prior period. Amortisation, depreciation and
     finance costs are higher in the current period due to capital expenditure incurred in the
     second half of the 2014 financial year to acquire NWJ stores and for the expansion and
     integration of the food services division, which benefits are expected in the latter half of the
     current year.

     It is anticipated that the food services division will continue its improvement in efficiencies
     and that the jewellery division will increase its corporate-owned store base.

     Taste remains committed to being a diversified franchisor invested in retail and restaurant
     brands within Southern Africa. The increased human resource capacity as a result of the re-
     structure in the food division will see the Group continuing to assess opportunities in line
     with its strategic intent, particularly within the food division.


4.   SALIENT TERMS OF THE RIGHTS OFFER
     In terms of the Rights Offer, Taste will offer a total of 60 052 514 Rights Offer Shares at a
     subscription price of 300 cents per Rights Offer Share in the ratio of 29.20 Rights Offer
     Shares for every 100 shares held in Taste on the close of business on the Record Date.

     The Subscription Price represents a discount of 19.29% to the 30 day volume weighted
     average traded price of Taste Shares on the JSE Limited (“JSE”) as at 31 July 2014, being
     the date on which the Rights Offer was approved by the board of directors of Taste
     (“Board”).

     Qualifying Shareholders will have the right to apply for Rights Offer Shares in excess of their
     entitlements, on the same terms and conditions as those applicable in terms of their
     entitlements.

     Upon their issue, the Rights Offer Shares will rank pari passu in all respects with the existing
     Taste Shares.

5. IRREVOCABLE UNDERTAKING
     59.4% of Shareholders have provided Taste with irrevocable undertakings to follow all of
     their rights in terms of the Rights Offer and to subscribe for all the ordinary Shares to which
     they are entitled. In addition, certain of these Shareholders have irrevocably applied for an
     additional 41.1% of Rights Offer Shares by way of Excess Applications. In terms of the
     irrevocable undertakings, such Shareholders have agreed to follow their Rights Offer
     Entitlement as set out below:
                                          Number of        Number of      Percentage       Number of
                                         Shares held          Rights        of Rights     Shares held
                                             in Taste          Offer            Offer         in Taste
                                           before the        Shares           Shares         after the
       Name of Shareholder               Rights Offer        offered              (%)     Rights Offer
       The Hylton Rabinowitz
       Family Trust*                       29 039 954       8 479 667             14.1     37 519 621
       Chickenland Proprietary
       Limited                             26 227 632       7 658 469             12.8     33 886 101
       Brimstone Investments
       Corporation Limited                 24 540 099       7 165 709             11.9     31 705 808
       PSG Asset Management
       Proprietary Limited                 11 842 756       3 458 085              5.8     15 300 841
       Midbrook Lane Proprietary
       Limited, Riskowitz Capital
       Management LLC and
       Protea Asset Management
       LLC                                  11 176 795       3 263 624              5.4     14 440 419
       Snowball Wealth                       7 132 176       2 082 595              3.5      9 214 771
       CoroCapital Proprietary
       Limited                               6 004 317      1 753 261              2.9       7 757 578
       The Beare Foundation*                 5 500 500      1 606 146              2.7       7 106 646
       Hylton Roy Rabinowitz*                  329 999          96 360             0.2         426 359
       Julian Hilton Beare                     300 000          87 600             0.1         387 600
                                           122 094 228      35 651 516            59.4     157 745 744
   
  * The Hylton Rabinowitz Family Trust and Hylton Roy Rabinowitz have, in terms of their Rights Offer
     Entitlements, together committed to subscribe for 3 096 359 Rights Offer Shares, and to sell the
     remaining 5 479 667 Rights Offer Shares to The Beare Foundation. The Beare Foundation has
     committed to purchase the 5 479 667 Rights Offer Shares.


6.   PRO FORMA FINANCIAL EFFECTS OF THE RIGHTS OFFER
     The table below sets out the pro forma financial effects of the Rights Offer on Taste’s basic
     earnings per share, diluted earnings per share, headline earnings per share, diluted
     headline earnings per share, net asset value per share and tangible net asset value per
     share.

     The pro forma financial effects have been prepared to illustrate the impact of the Rights
     Offer on the audited financial statements of Taste for the year ended 28 February 2014, had
     the Rights Offer occurred on 1 March 2013 for purposes of the statement of comprehensive
     income and on 28 February 2014 for purposes of the statement of financial position.

     The pro forma financial effects have been prepared using accounting policies that comply
     with IFRS and that are consistent with those applied in the audited financial statements of
     Taste for the year ended 28 February 2014.

     The pro forma financial effects which are the responsibility of the directors of the Company
     are provided for illustrative purposes only and, because of their pro forma nature may not
     fairly present Taste’s financial position, changes in equity, results of operations or cash flow
     nor the effect and impact of the Rights Offer going forward.

     The full financial effects will be included in the Rights Offer circular to Taste Shareholders
     which circular is currently being finalised and is expected to be distributed on or about
     9 September 2014.

                                                                                    Pro forma       Percentage
                                                                Before the           After the         change
                                                               Rights Offer       Rights Offer              %
      Basic earnings per share (cents)                                 15.6               15.3             (2)
      Diluted earnings per share (cents)                               15.1               14.9             (1)
      Headline earnings per share (cents)                                16               15.6             (3)
      Diluted headline earnings per share (cents)                      15.5               15.2             (2)
      Net asset value per share (cents)                               112.9              155.4             38
      Tangible net asset value per share (cents)                       44.0              102.5            133
      Weighted average number of shares in
      issue
      Basic                                                     194 790 561         254 843 075
      Diluted                                                   200 934 788         260 987 302
      Total number of shares in issue (net of
      treasury shares)
      Basic                                                     199 303 982         259 356 496
      Diluted                                                   206 904 412         266 956 926

     Notes:
     1.     The Information in the “Before the Rights Offer” column has been extracted from the audited
            financial statements of Taste for the year ended 28 February 2014.
     2.     The “Pro forma After the Rights Offer” column reflects the pro forma financial effects of the Rights
            Offer on earnings, diluted earnings, headline earnings, diluted headline earnings, net asset value
            and net tangible asset value per share based on the following assumptions:
     3.     60 052 514 Rights Offer Shares are assumed to have been issued at a subscription price of 300
            cents per Rights Offer Share in the ratio of 29.20 Rights Offer Shares for every 100 Taste Shares
            held pursuant to the Rights Offer, thereby raising capital of R180 157 542.
     4.     The net proceeds of the Rights Offer after deduction of estimated once-off transaction costs of
            R2 million (which have been offset against the stated capital account as per note 7 below) will be
            used to settle loans, the balance of which will be held in a money market account at an interest
            rate of 6% per annum.
     5.     The Rights Offer was implemented on 28 February 2014 for statement of financial position
            purposes, and implemented on 1 March 2013 for statement of comprehensive income purposes.
     6.     All adjustments, except for transaction costs, are expected to have a continuing effect.
     7.     The transaction costs of approximately R2 million relating to the Rights Offer and listing of the
            Rights Offer Shares has been offset against the stated capital account.


7.   SALIENT DATES AND TIMES
                                                                                                           2014
          Rights Offer Declaration Data announcement released on SENS                       Thursday, 28 August
          Rights Offer Finalisation announcement released on SENS                          Tuesday, 2 September
          Last day to trade in Taste Shares in order to settle trades by the                
          Record Date for the Rights Offer and to qualify to participate in the
          Right Offer (cum entitlement) on                                                  Friday, 5 September
          Listing of and trading in the Letters of Allocation on the JSE under
          JSE code TASN and ISIN ZAE000193876 commences at 09:00
          on                                                                                Monday, 8 September
          Taste Shares commence trading ex-rights on the JSE at 09:00 on                    Monday, 8 September
          Circular and Form        of   Instruction   posted    to   Certificated
          Shareholders on                                                                  Tuesday, 9 September
          Record date for the Rights Offer for purposes of determining the
          Taste Shareholders entitled to participate in the Rights Offer at the
          close of business on                                                             Friday, 12 September
          Rights Offer opens at 09:00 on                                                   Monday, 15 September
          Holders of Dematerialised Taste Shares will have their accounts at
          their CSDP or broker automatically credited with their Letters of
          Allocation on                                                                    Monday, 15 September
          Holders of Certificated Taste Shares will have their Letters of
          Allocation credited to an electronic register at the Transfer
          Secretaries on                                                                   Monday, 15 September
          Circular posted to Dematerialised Shareholders, who have elected
          to receive such documents on                                                    Tuesday, 16 September
          Last day to trade in Letters of Allocation in order to settle trades by
          the Record Date for the Letters of Allocation and participate in the
          Rights Offer at the close of business on                                       Thursday, 18 September
          Last day for Form of Instruction to be lodged with the Transfer
          Secretaries by holders of Certificated Taste Shares wishing to sell
          all or part of their Rights Offer Entitlement by 12:00 on                      Thursday, 18 September
          Listing and trading of Rights Offer Shares commences on the JSE
          at 09:00 on                                                                      Friday, 19 September
          Last day for Form of Instruction to be lodged with the Transfer
          Secretaries by holders of Certificated Taste Shares wishing to
          subscribe for or renounce all or part of their Rights Offer
          Entitlement by 12:00 on (see note 2)                                             Friday, 26 September
          Record date for Letters of Allocation                                            Friday, 26 September
          Rights Offer closes at 12:00 and payment to be made on                           Friday, 26 September
          CSDP/broker accounts credited with Rights Offer Shares and
          debited with the payments due in respect of holders of
          Dematerialised Taste Shares on                                                   Monday, 29 September
          Rights Offer Share certificates in terms of the Rights Offer posted
          to holders of Certificated Taste Shares via registered post on or
          about                                                                            Monday, 29 September
          Results of Rights Offer announced on SENS on                                     Monday, 29 September
          CSDP/broker accounts credited with excess Rights Offer Shares,
          where applicable, and debited with the payments due in respect of
          holders of Dematerialised Taste Shares on                                        Wednesday, 1 October
          Rights Offer Share certificates in terms of the excess Rights Offer
          Shares, where applicable, posted to holders of Certificated Taste
          Shares via registered post on or about                                           Wednesday, 1 October
          Refund cheques posted to holders of Certificated Taste Shares in
          respect of unsuccessful applications via registered post on or
          about                                                                            Wednesday, 1 October
     Notes:
     1. The above dates and times, which times are local times in South Africa, are subject to
        amendment. Any such amendment will be released on SENS.
     2. Holders of Dematerialised Taste Shares are required to notify their CSDP or broker of the action
        they wish to take in respect of the Rights Offer in the manner and by the time stipulated in the
        agreement governing the relationship between the Dematerialised Shareholder and his CSDP or
        broker.
     3. Taste share certificates may not be Dematerialised or rematerialised between Monday,
        8 September 2014 and Friday, 12 September 2014, both days inclusive.
     4. CSDPs effect payment in respect of holders of Dematerialised Rights Offer Shares on a delivery
        versus payment basis.
     5. To the extent that the rights are accepted, Dematerialised Shareholders will have their accounts at
        their CSDP automatically credited with their rights and Certificated Shareholders will have their
        rights credited to an account at Computershare Investor Services.
     6. Rights Offer share certificates to be issued in terms of the Rights Offer will be posted to persons
        entitled thereto, by registered post, at the risk of the Certificated Shareholders concerned.

8.   RESTRICTIONS ON THE RIGHTS OFFER
     Any Shareholder resident outside the Common Monetary Area, being the Republics of
     South Africa and Namibia and the Kingdoms of Lesotho and Swaziland, who receives the
     Rights Offer circular and accompanying form of instruction, should obtain advice as to
     whether any governmental and/or any other legal consent is required and/or any other
     formality must be observed to enable such a subscription to be made in terms of such form
     of instruction.

     The Rights Offer does not constitute an offer in any jurisdiction in which it is illegal to make
     such an offer and the Rights Offer circular and accompanying form of instruction should not
     be forwarded or transmitted any person in any territory other than where it is lawful to make
     such an offer.

     The Rights Offer Shares have not been and will not be registered under the Securities Act
     of the United States of America. Accordingly, the Rights Offer Shares may not be offered,
     sold, resold, delivered or transferred, directly or indirectly, in or into the United States or to,
     or for the account or benefit of, United States persons, except pursuant to exemptions from
     the Securities Act. The Rights Offer circular and the accompanying documents are not
     being, and must not be, mailed or otherwise distributed or sent in, into or from the United
     States. The Rights Offer circular does not constitute an offer of any securities for sale in the
     United States or to United States persons.

     The Rights Offer contained in the Rights Offer circular does not constitute an offer in the
     District of Columbia, the United States, the Dominion of Canada, the Commonwealth of
     Australia, Japan or in any other jurisdiction in which, or to any person to whom, it would not
     be lawful to make such an offer (“Non-qualifying Shareholder”). Non-qualifying
     Shareholders should consult their professional advisers to determine whether any
     governmental or other consents are required or other formalities need to be observed to
     allow them to take up the Rights Offer, or trade their entitlement. To the extent that Non-
     qualifying Shareholders are not entitled to participate in the Rights Offer, such Non-
     qualifying Shareholders should not take up their Rights Offer entitlement or trade in their
     Rights Offer entitlement and should allow their rights in terms of the Rights Offer to lapse.


9.   ANTICIPATED DIRECTORS DEALINGS IN TERMS OF RIGHTS OFFER SHARES
     In compliance with the JSE Listings Requirements, the following disclosure is made prior
     to Taste entering into a closed period.

     The following directors have indicated that they intend accepting or selling the following
     number of Rights Offer Shares:
     Director                                        Rights to be followed         Rights to be sold
                      1
     H R Rabinowitz                                                3 096 359                5 479 667
                2
     J B Currie                                                      938 036                        -
     C F Gonzaga and associates                                    2 000 000                        -
     R L Daly and associates                                       1 300 000                  177 286
     D J Crosson                                                   1 500 000                        -
     A Berman                                                        394 200                        -
     W P van der Merwe                                               350 400                        -
     K Utian and associates                                          292 000                        -
                 2
     G Pattison                                                    2 000 000                        -
     E Tsatsarolakis                                                  29 200                        -
   
    1. H R Rabinowitz has committed to sell his Rights to an existing shareholder as per paragraph 5 of
       this announcement.
    2. J B Currie has agreed to renounce 2 million Rights to G Pattison. G Pattison intends to subscribe
       for the 2 000 000 Rights Offer Shares.


10. FURTHER ANNOUNCEMENT AND CIRCULAR
    The Rights Offer Finalisation Announcement is expected to be released on SENS on or
    about 2 September 2014.

    The Rights Offer circular, and accompanying form of instruction for use by certificated
    Shareholders only, containing full particulars of the Rights Offer will be posted to
    shareholders on or about 9 September 2014.

    The Rights Offer circular containing full particulars of the Rights Offer will be distributed to
    dematerialised Shareholders who have elected to receive such documents on or about 16
    September 2014.

Johannesburg
28 August 2014

Sponsor, Corporate Advisor and Book Runner
Merchantec Capital

Forward Looking Statement:
This announcement contains certain forward looking statements. These forward-looking
statements are not historical facts but rather are based on the Company’s current expectations,
estimates and projections about the industry in which Taste operates, and beliefs and
assumptions regarding the Company’s future performance. Words such as “anticipates”,
“expected”, “intends”, “plans”, “believes”, “seeks”, “estimated”, “potential” and similar
expressions are intended to identify forward-looking statements. These statements are not
guarantees of future performance and are subject to known and unknown risks, uncertainties
and other factors, some of which are beyond the control of the Company, are difficult to predict
and could cause actual results to differ materially from those expressed or forecasted in the
forward-looking statements. Taste cautions shareholders and prospective shareholders not to
place undue reliance on these forward-looking statements, which reflect the view of Taste only
as of the date of this announcement. The forward-looking statements made in this
announcement relate only to events as of the date on which the statements are made. Taste will
not undertake any obligation to release publicly any revisions or updates to these forward-
looking statements to reflect events, circumstances or unanticipated events occurring after the
date of this announcement except as required by law or by any appropriate regulatory authority.

Date: 28/08/2014 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
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