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Disposal of Interest in Burger King (South Africa) RF Proprietary Limited and Grand Foods Meat Plant Proprietary Lim
GRAND PARADE INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
(Registration Number 1997/003548/06)
Share code: GPL
ISIN: ZAE000119814
(“GPI” or the “Company”)
DISPOSAL OF INTEREST IN BURGER KING (SOUTH AFRICA) RF PROPRIETARY
LIMITED AND GRAND FOODS MEAT PLANT PROPRIETARY LIMITED
1. INTRODUCTION
Shareholders are referred to the Company’s terms announcement published on SENS on
19 February 2020, advising shareholders that the parties concluded a binding offer
regarding the disposal of the Company’s shares in (i) Burger King South Africa (RF)
Proprietary Limited and (ii) Grand Foods Meat Plant Proprietary Limited, to ECP Africa
Fund IV LLC and the updated terms announcement published on SENS on 29 July 2020,
advising shareholders that the parties re-negotiated certain terms and have consequently,
on 28 July 2020, concluded a revised binding offer (collectively, the “Revised Offer”)
(“Terms Announcements”). Shareholders were, however, on 24 December 2020
advised on SENS that the date for the conclusion of the share purchase agreement in
respect of the Revised Offer had expired. Despite the lapse of the Revised Offer, the
parties continued to negotiate.
Accordingly, the Company is pleased to inform shareholders that the Company’s
wholly-owned subsidiaries, Grand Foods Proprietary Limited (“GFMP Seller”) and Grand
Foods Investments 1 Proprietary Limited (“BKSA Seller”) have now concluded a share
purchase agreement (“Disposal Agreement”) with ECP Power and Water Holding LLC
(“ECP”), an affiliate of ECP Africa Fund IV LLC, on 19 February 2021, pursuant to which
(i) the BKSA Seller will sell all of the shares it holds in Burger King South Africa (RF)
Proprietary Limited (“BKSA”) (“BKSA Sale Shares”), being 95.78% of the issued share
capital of BKSA following the implementation of the BKSA Intra-Group Loan Capitalisation
(as defined below) and (ii) the GFMP Seller will sell all of the shares it holds in Grand
Foods Meat Plant Proprietary Limited (“GFMP”) (“GFMP Sale Shares”), being 100% of
the issued share capital of GFMP, (together the “Sale Shares”) to ECP (“Disposal”).
The terms of the Disposal are materially the same as the terms of the Revised Offer as
detailed in the Terms Announcements. However, given the time that has passed since
the conclusion of the Revised Offer and for the sake of completeness, the Company has
decided to provide shareholders with an updated detailed terms announcement of the
Disposal as set out herein.
2. RATIONALE
Background in respect of ECP
ECP is a leading private equity firm focused on Africa. During the 20 years since ECP
was established, the firm has raised over $3 billion for private equity investment in Africa,
has made over 60 investments across the continent and has fully exited 45 of these
investments returning over $1.3 billion to investors to date. ECP has over two dozen
professionals that operate from offices across Africa, including Johannesburg, Nairobi,
Abidjan and in Washington DC. ECP has had a long history in South Africa with Nelson
Mandela sitting on ECP’s first fund’s advisory committee. ECP’s most recent fund, ECP
Africa Fund IV and related entities, which achieved final close in September 2018, has
over $640 million in commitments.
ECP has substantial experience investing in the African consumer sector. The consumer
sector has been one of ECP’s largest sectors by number of investments with ECP having
completed 12 transactions in the sector. ECP is a highly experienced private equity
investor in the African restaurant sector. The ECP senior team that led the Java House
investment and sat on the board of Java House for 5 years, and more recently led the
Artcaffe investment and sit on its board, is the same team that would be actively engaged
on BKSA. The team members sit on the boards of several South African companies as
well as numerous other fast-growing African companies.
Rationale for GPI
GPI is an investment holding company with minority interests in the gaming industry and
controlling interests in the food and manufacturing industry. GPI has historically traded at
a significant discount to its intrinsic net asset value (“iNAV”), with a large portion of the
discount attributed to its food and manufacturing investments. Over the last 2 years
management has undergone a process of restructuring the business with the main aim of
reducing the discount to iNAV. This process involved discontinuing loss-making
businesses and improving the profitability of its operational food and manufacturing
businesses. The restructure resulted in a vast improvement in profitability, which assisted
in reducing the discount.
The next phase of the journey to reduce the discount and unlock value for shareholders
is the controlled and selected sale of GPI’s attractive portfolio of assets. The sale of GPI’s
interest in BKSA and GFMP represents a significant milestone in this value unlock
strategy for GPI shareholders.
Benefits for South Africa
GPI played a pivotal role in bringing Burger King to South Africa. Through this sale to
ECP, GPI has attracted much-needed foreign investment that will support the growth of
BKSA going forward. This should have a positive impact on BKSA and job creation.
3. DESCRIPTION OF BKSA AND GFMP
BKSA acquired the rights to the master franchise for the BURGER KING® brand in South
Africa, which has exclusive rights to develop and expand the BURGER KING® brand in
the country’s quick service restaurant market. BKSA opened the first BURGER KING®
restaurant in Cape Town at 33 on Heerengracht in May 2013 and has established a
meaningful presence in the quick-service restaurant market in South Africa during its first
7 years of operations. As at the date of this announcement, 97 restaurants have been
opened at locations throughout South Africa.
GFMP operates a meat plant that is a state-of-the-art burger production facility built to
EU standards and is a Halaal-certified supplier. BKSA is GFMP’s largest customer with
more than 90% of the sales. The plant also supplies Spur with frozen patties as well as
the Grill Father.
4. PARTICULARS OF THE DISPOSAL
The BKSA Seller currently holds 91.07% of the shares in BKSA, with the remaining shares
being held by Burger King Europe GmbH. The parties to the Disposal have agreed that
all intra-group loans that the BKSA Seller may have against BKSA will be capitalised and
converted to equity (“BKSA Intra-Group Loan Capitalisation”) before the Closing Date
(as defined below) and, accordingly, ECP will not be acquiring any shareholder loan
claims. The aggregate amount outstanding in respect of such intra-group loans at the date
of implementation of the BKSA Intra-Group Loan Capitalisation will amount to R635
049 600 (“BKSA Outstanding Amount”) and the number of ordinary shares in the capital
of BKSA to be issued to the BKSA Seller will be 1872 shares (comprising 4.71% of BKSA’s
share capital), in full and final repayment of the BKSA Outstanding Amount.
The BKSA Sale Shares will therefore comprise of all the current shares held by the BKSA
Seller in BKSA, comprising 91.07% as at signing, and which will comprise, following the
BKSA Intra-Group Loan Capitalisation, 95.78% of the issued share capital of BKSA.
The GFMP Seller holds 100% of the shares in GFMP. All intra-group loans that the GFMP
Seller may have against GFMP will be capitalised and converted to equity (“GFMP Intra-
Group Loan Capitalisation”) before the Closing Date (as defined below) and,
accordingly, ECP will not be acquiring any shareholder loan claims. The aggregate
amount outstanding in respect of such intra-group loans at the date of implementation of
the GFMP Intra-Group Loan Capitalisation will amount to R9 989 331 (“GFMP
Outstanding Amount”) and the number of ordinary shares in the capital of GFMP to be
issued to the GFMP Seller will be 102 shares, in full and final repayment of the GFMP
Outstanding Amount.
The BKSA Intra-Group Loan Capitalisation and the GFMP Intra-Group Loan
Capitalisation will be fully implemented prior to the Closing Date (as defined below).
As stated above, the Disposal entails the Company, via the BKSA Seller and the GFMP
Seller (collectively, the “Sellers”), disposing of its entire shareholding in BKSA and in
GFMP to ECP.
5. EFFECTIVE DATE OF THE DISPOSAL
The effective date of the Disposal will be the date being 15 business days following the
date on which the last of the conditions precedent below have been satisfied or waived
(“Closing Date”) (other than conditions which, by their nature, are to be satisfied on the
Closing Date).
6. CONDITIONS PRECEDENT
6.1. The obligations of each party to consummate the transactions contemplated by the
Disposal Agreement is subject to the fulfilment, at or prior to the 19th of June 2021, of
each of the following conditions:
6.1.1. ECP shall have received the approval for the Disposal from the South African
competition authorities in terms of the Competition Act, No. 89 of 1998 on
conditions acceptable to ECP and provided such approval to the Sellers, and
such approval shall not have been revoked;
6.1.2. GPI shall have received the approval by GPI’s shareholders of the Disposal in
accordance with provisions of the JSE Limited Listings Requirements, and
provided evidence of such shareholder approval to ECP, and such shareholder
approval shall not have been revoked;
6.1.3. no governmental authority shall have enacted, issued, promulgated, enforced or
entered any injunction or restraining order which is in effect and has the effect of
making the Disposal illegal, otherwise prohibiting consummation of such
transaction or causing any of the transactions contemplated in the Disposal
Agreement to be rescinded following completion thereof;
6.1.4. no action shall have been commenced against ECP, either Seller or any member
of BKSA, its subsidiaries and GFMP which would make the transactions
contemplated by the Disposal Agreement illegal, otherwise prohibit
consummation of such transactions or cause any of the transactions
contemplated hereunder to be rescinded following completion thereof;
6.1.5. procurement of relevant approvals and waivers by Burger King Europe GmbH to
the Disposal and amendments to relevant agreements between Burger King
Europe GmbH and BKSA;
6.1.6. a new shareholders agreement in respect of BKSA and termination of the existing
BKSA shareholders’ agreement, shall have been duly executed by the parties
thereto;
6.1.7. no judgement, injunction or restraining order shall have been issued by any
governmental authority, and be in effect, which restrains or prohibits any material
transaction contemplated in the Disposal Agreement;
6.1.8. the procurement of consents and approvals from the bankers of the Sellers to the
Disposal, in relation to the release of existing security arrangements and existing
facility agreements; and
6.1.9. ECP shall have received the new duly executed written services agreement in
relation to the provision of IT services by relevant service providers.
6.2. The obligations of ECP to consummate the transactions contemplated by the Disposal
Agreement shall be subject to the fulfilment or ECP’s waiver, at or prior to the 19th of
June 2021 of each of the following conditions:
6.2.1. the representations and warranties of the Sellers contained in the Disposal
Agreement and ancillary documentation shall be true and correct in all material
respects on and as of the date of the Disposal Agreement and on and as of the
Closing Date (except those representations and warranties that address matters
only as of a specified date, the accuracy of which shall be determined as of that
specified date), save for fundamental representations and warranties that shall
be true in all respects;
6.2.2. the Sellers and their affiliates shall have duly performed and complied in all
material respects with all agreements, covenants and conditions required by the
Disposal Agreement to be performed or complied with by it prior to or on the
Closing Date;
6.2.3. all required approvals, consents and waivers from counterparties of certain
contracts, permits, documents or agreements that are listed in the disclosure
schedules to the Disposal Agreement shall have been received, and executed
counterparts thereof shall have been delivered to ECP;
6.2.4. there shall not have occurred any material adverse effect since the date of the
Disposal Agreement;
6.2.5. all the steps to implement the BKSA Intra-Group Loan Capitalisation and the
GFMP Intra-Group Loan Capitalisation (“Intra-Group Loan Capitalisations”)
shall have been completed to the reasonable satisfaction of ECP and the Sellers
shall have delivered certified copies of the statutory books of BKSA and GFMP
and duly written up to reflect completion of the Intra-Group Loan Capitalisations;
6.2.6. the Sellers shall have delivered to ECP a legal opinion from the Sellers’ counsel
addressed to BKSA and ECP;
6.2.7. ECP shall have received relevant approvals from the bankers of BKSA to the
satisfaction of ECP;
6.2.8. the Sellers shall have delivered to ECP the lease agreement pursuant to which
GFMP is granted a lease of the property on which GFMP’s burger production
facility is situated (“Meat Plant Property”), on terms and conditions (including as
to rent) which are at least as favorable to GFMP as the current Meat Plant
Property lease agreement, for a period of five years (and pursuant to which GFMP
shall have the option to renew such lease on the same terms for a further period
of five years) (the “Meat Plant Property New Lease”). The Meat Plant Property
New Lease shall be in form and substance reasonably satisfactory to both GPI
and ECP;
6.2.9. Sellers shall have delivered to ECP a new written master supply and services
agreement in relation to the provision of manufacturing, production, supply and/or
maintenance services in respect of restaurant equipment of BKSA, in form and
substance satisfactory to ECP and Sellers;
6.2.10. Sellers shall have delivered to ECP evidence (to the reasonable satisfaction of
ECP) that BKSA and GFMP are covered by the terms of the insurance policies
currently in place in respect of BKSA and GFMP (except for the directors and
officers policy and the commercial crimes policy) until at least October 31, 2021
and that the interest of ECP has been properly noted on such insurance policies;
6.2.11. Sellers shall have delivered to ECP confirmation of the total amount of accruals
in respect the BKSA group staff bonuses and the GFMP staff bonuses as at the
Closing Date and the total aggregate accruals in respect of the such bonuses as
at the Closing Date, in a form acceptable to ECP;
6.2.12. ECP shall have received a certificate, dated on the Closing Date and signed by a
duly authorised officer of each of the Sellers, confirming that each of the
conditions set forth in paragraphs 6.2.1, 6.2.2 and 6.2.4 have been satisfied;
6.2.13. the Sellers shall have delivered to ECP such other documents or instruments as
ECP reasonably requests and are reasonably necessary to consummate the
transactions contemplated by the Disposal Agreement.
6.3. The obligations of the Sellers to consummate the transactions contemplated by the
Disposal Agreement shall be subject to the fulfilment or the Sellers’ waiver, at or prior
to the 19th of June of each of the following conditions:
6.3.1. the representations and warranties of ECP contained in the Disposal Agreement
and ancillary documents shall be true and correct in all respects on and as of the
date of the Disposal Agreement and on and as of the Closing Date (except those
representations and warranties that address matters only as of a specified date,
the accuracy of which shall be determined as of that specified date);
6.3.2. ECP shall have duly performed and complied in all respects with all agreements,
covenants and conditions required by the Disposal Agreement to be performed
or complied with by it prior to or on the Closing Date;
6.3.3. the share pledges (referred to in paragraph 9 below) shall have been duly
executed by ECP and the BKSA Seller and the GFMP Seller (as applicable);
6.3.4. the Sellers shall have received a certificate, dated on the Closing Date and signed
by a duly authorized officer of ECP, that each of the conditions set forth in
paragraphs 6.3.1 and 6.3.2 have been satisfied; and
6.3.5. ECP shall have delivered to the Sellers such other documents or instruments as
the Sellers reasonably requests and are reasonably necessary to consummate
the Disposal.
7. CONSIDERATION
BKSA Consideration
7.1. The purchase consideration to be paid by ECP for the BKSA Sale Shares
(“BKSA Consideration”) shall be an amount equal to the sum of the following:
7.1.1. 95.78% of R570 000 000;
7.1.2. plus 95.78% of R15 000 000, being the capital expenditure to be added back in
respect of certain new stores opened by BKSA (“Store CAPEX Amount”).
However, if there are any new stores in respect of which Sellers have not provided
ECP (to its reasonable satisfaction) evidence that 100% of the target capital
expenditure as set out in the Disposal Agreement has been fully spent and paid
for, (each such new store a “Relevant New Store”) then the Store CAPEX
Amount shall be reduced (on a rand for rand basis) by the aggregate shortfall for
all such Relevant New Stores;
7.1.3. minus an amount equal to 95.78% of the BKSA debt and debt-like items; and
7.1.4. minus an amount equal to 95.78% of the BKSA average Nedbank related daily
net debt.
7.2. ECP shall settle the BKSA Consideration as follows:
7.2.1. on the Closing Date, ECP shall pay to the BKSA Seller an amount (“BKSA
Tranche 1 Payment”) equal to 90% of the BKSA Seller’s good faith estimate of
the BKSA Consideration (“BKSA Estimated Consideration”). The BKSA
Estimated Consideration will be calculated by the Sellers based on the estimated
consolidated statements of financial position of BKSA as at the business day prior
to the Closing date (“Effective Time”). Notwithstanding the aforementioned, if the
actual BKSA Consideration (calculated by ECP using completion accounts) is:
7.2.1.1. less than the BKSA Estimated Consideration, the BKSA Seller shall pay to
ECP the amount by which the BKSA Tranche 1 Payment exceeded the
amount equal to 90% of the actual BKSA Consideration; or
7.2.1.2. more than the BKSA Estimated Consideration, ECP shall pay to the BKSA
Seller the amount by which the BKSA Tranche 1 Payment is less than the
amount equal to 90% of the actual BKSA Consideration.
7.2.2. subject to set off, withholding and deferment pursuant to and in accordance with
paragraph 7.5 below:
7.2.2.1. 6 months after the Closing Date, ECP shall pay to the BKSA Seller 5% of
the BKSA Consideration in cash by electronic funds transfer to bank
account/s designated by BKSA the Seller (“BKSA Tranche 2
Payment”); and
7.2.2.2. 24 months after the Closing Date, ECP shall pay to the BKSA Seller the
remaining 5% of the BKSA Consideration in cash by electronic funds
transfer to bank account/s designated by the BKSA Seller (“BKSA Tranche
3 Payment”).
GFMP Consideration
7.3. The purchase consideration to be paid by ECP for the GFMP Sale Shares
("GFMP Consideration”) shall be an amount equal to the sum of the following:
7.3.1. R23 000 000;
7.3.2. minus an amount equal to the GFMP debt and debt-like items; and
7.3.3. minus an amount equal to the GFMP average Nedbank and Standard Bank
related daily net debt.
7.4. ECP shall settle the GFMP Consideration as follows:
7.4.1. on the Closing Date, ECP shall pay to the GFMP Seller an amount
(“GFMP Tranche 1 Payment”) equal to 90% of the GFMP Seller’s good faith
estimate of the GFMP Consideration (“GFMP Estimated Consideration”). The
GFMP Estimated Consideration will be calculated by the GFMP Seller based on
the estimated statements of financial position of GFMP as at the Effective Time.
Notwithstanding the aforementioned, if the actual GFMP Consideration
(calculated by ECP using completion accounts) is:
7.4.1.1. less than the GFMP Estimated Consideration, the GFMP Seller shall pay to
ECP the amount by which the GFMP Tranche 1 Payment exceeded the
amount equal to 90% of the actual GFMP Consideration; or
7.4.1.2. more than the GFMP Estimated Consideration, ECP shall pay to the GFMP
Seller the amount by which the GFMP Tranche 1 Payment is less than the
amount equal to 90% of the actual GFMP Consideration.
7.4.2. subject to set off, withholding and deferment pursuant to and in accordance with
paragraph 7.5 below:
7.4.2.1. 6 months after the Closing Date, ECP shall pay to the GFMP Seller 5% of
the GFMP Consideration in cash by electronic funds transfer to bank
account/s designated by the GFMP Seller (“GFMP Tranche 2
Payment”); and
7.4.2.2. 24 months after the Closing Date, ECP shall pay to the GFMP Seller the
remaining 5% of the GFMP Consideration in cash by electronic funds
transfer to bank account/s designated by the GFMP Seller (“GFMP Tranche
3 Payment”).
7.5. Any amount due by the Sellers to ECP in terms of the Disposal Agreement, including
in respect of any resolved warranty and indemnity claims by ECP, may be set-off
against the BKSA or GFMP Tranche 2 Payments and/or the BKSA or GFMP Tranche
3 Payments, or be treated as being reduced pro tanto by the amount so set off.
Further, in respect of any notified but unresolved warranty and indemnity claims by
ECP, ECP shall be entitled to withhold from such Tranche 2 Payments and/or the
Tranche 3 Payments an amount equal to a good faith and bona fide estimate of the
amount of the relevant Sellers’ liability if such outstanding claim were to be resolved
in ECP’s favor, subject to the determination of liability and quantum of such claim.
8. APPLICATION OF THE CONSIDERATION
The proceeds of the Disposal will be used to partially settle debt and the remaining
proceeds will be returned to shareholders, subject to solvency and liquidity requirements.
This forms part of GPI’s strategy to unlock value for shareholders through a controlled
sale of its underlying assets.
9. WARRANTIES AND OTHER SIGNIFICANT TERMS OF THE OFFER
Security for payment of the Purchase Consideration
As security for ECP’s obligations in respect of BKSA Tranche 2 Payment and the BKSA
Tranche 3 Payment, ECP shall deliver and pledge in securitatem debiti (and not out and
out) to the BKSA Seller, a first priority, fully executed share pledge in respect of such
number of shares constituting 10% of the BKSA Sales Shares.
As security for ECP’s obligations in respect the GFMP Tranche 2 Payment and the GFMP
Tranche 3 Payment, ECP shall deliver and pledge in securitatem debiti (and not out and
out) to GPI, a first priority, fully executed share pledge in respect of such number of shares
constituting 10% of the GFMP Sale Shares.
The Disposal Agreement further contains representations, warranties and indemnities by
the parties in favour of each other which are standard for a transaction of this nature.
10. FINANCIAL INFORMATION
The value of the net assets comprising the Sale Shares as at 30 June 2020, being the
date of the last audited financial statements of GPI, was R484 894 230.
The audited loss after tax attributable to the Sale Shares for the 12-month period ended
30 June 2020, was R31 175 736, based on the audited financial statements of GPI for the
12 months ended 30 June 2020. The audited financial statements of GPI were prepared
in terms of IFRS.
11. CLASSIFICATION OF THE DISPOSAL
In terms of the JSE Limited Listings Requirements, the disposal of the BKSA Sale Shares
and the GFMP Sale Shares should be aggregated. As the aggregated value of the
Disposal exceeds 30% of the Company’s market capitalisation as at the date of the
signature of the Disposal Agreement, it meets the definition of a category 1 transaction
as contemplated in section 9 of the JSE Limited Listings Requirements.
As a result, the Disposal is required to be approved by an ordinary resolution of the
shareholders of the Company and accordingly a general meeting of the shareholders of
the Company will be convened.
12. CIRCULAR
A circular containing the full details of the Disposal, incorporating a notice convening the
required general meeting of the shareholders of the Company, will be distributed to
shareholders in due course, at which time the salient dates and times of the Disposal,
including the date of the general meeting, will be announced on SENS.
Cape Town
22 February 2021
Sponsor and Corporate Advisor
PSG Capital
Legal Advisors
Cliffe Dekker Hofmeyr
Date: 22-02-2021 12:00:00
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