GPI to buy 10% of Spur Corp

The transaction will see GPI subscribe for 10.85m new Spur shares for a total consideration of R294.7 million, or R27.16 per share which equates to a 10% discount to the 90 day VWAP of Spur shares on the JSE. Trading in Spur shares closed at R31.10 per share on Wednesday, 30 July, 14.5% above the transaction issue price.

Alan Keet, CEO of GPI, said that the transaction is in line with GPI's strategy of leveraging its strong balance sheet and empowerment credentials to invest in value-enhancing opportunities and that the transaction ties in with GPI plans to grow its presence in the food and hospitality industry.

Spur is South Africa's leading family restaurant franchisor and includes sit-down restaurant brands: Spur Steak Ranches, Panarottis Pizza Pasta and John Dory's Fish Grill Sushi. Spur has also recently acquired the premium steakhouse group The Hussar Grill and the quick service chain Captain DoRegos.

Recent investments

In March 2013 GPI acquired the rights to operate and franchise Burger King restaurants in South Africa and select southern African countries, and has since opened 18 Burger King restaurants across South Africa.

GPI chairman Hassen Adams said that the transaction is attractive for more than the simple empowerment angle and that both companies are keen to unlock operating synergies. "A partnership with the leading restaurant operator is going to significantly strengthen our ability to achieve the ambitious targets that we have set in the food industry and related sectors. Our plans to accelerate growth in Burger King remain a priority and are a key part of our strategy."

Spur and GPI have both recently made investments in related industries: GPI through the acquisition of a majority stake in Mac Brothers Catering Equipment and Spur through the acquisition of a 30% stake in Braviz Fine Foods, a meat processing business.

Spur CEO, Pierre van Tonder, said his group has long been looking for an empowerment partner that will offer a sustainable, mutually beneficial business relationship rather than simply boosting BEE ratings. "We believe we have found a great long-term partner in GPI with similar ambitions. There is a misconception that empowerment has limited impact on our industry, but we are seeing a growing need for a strong empowerment scorecard and meaningful transformation." In 2013 Spur appointed an executive to manage the group's transformation journey, highlighting their commitment to sustainable empowerment.

Funding

GPI will fund the transaction through a combination of existing cash resources (R72.3 million, representing 24.55% of the funding requirement) and preference share funding from Spur (R72.3 million, 24.55%) and from Standard Bank (R150 million, 50.9%). The investment will result in a net cash inflow of R222.3 million for Spur.

"We intend using the transaction proceeds to enhance our African support structure and to pursue strategic acquisition opportunities in related businesses with a focus on vertical integration of manufacturing facilities related to core products used in our restaurant operations," said Van Tonder. "We also plan to fund the land and building costs of an extension to our head office, and to accelerate the upgrading of some of our production facilities."

Share donation

Spur simultaneously announced the proposed donation of 500,000 treasury shares over a period of five years to the Spur Foundation to provide annuity income to sustain the Spur Foundation's ongoing charitable donations. The Spur Foundation was founded in July 2012 through a R670 000 donation and now requires more sustainable funding to continue to support its community programmes.

Spur's shareholders will be required to approve both the GPI transaction and the donation to the Spur Foundation. A circular will be distributed to shareholders in due course with more detailed information relating to both transactions.