Taste asks for more money from shareholders
The fast-food chain, which as already been given more than R1bn through several rights issues, has had long-standing operational problems
Taste Holdings, which runs the Starbucks coffee shop and Domino’s Pizza outlets, has again asked its shareholders to provide it with funding despite them already giving it R1.06bn through several rights issues.
A difficult economy, along with long-standing operational problems at its food division, has seen the fast food and jewellery retailer haemorrhaging cash.
This could be seen in fast food and takeaway sales falling 0.3% month-on-month in October, and its centralised buying subsidiary, Buon Gusto, incurring an operating loss of R87m, for the half year to end-August.
The troubled group now wants to raise a further R132m in funding in spite of it previously raising R398m from them earlier in 2018.
The terms of its latest rights offer, however, were disadvantageous to its minority shareholders. If accepted, it would see their holdings diluted as a result of the group’s share capital doubling from 2-billion to 4-billion. Their holdings would also lose value because the offer of 10c a share, came in well below the 16c it opened at on Wednesday.
If minority shareholders accepted the offer, it would put its majority shareholder, the Sean Riskowitz backed Riskowitz Value Fund (RVF) in a powerful position if it wanted to push through its delisting.
Such a move could already be on the cards, says independent analyst Anthony Clark. “It’s trying to delist the group through the backdoor.”
Clark surmised that as RVF held about 66% of Taste, it could end up holding more than 90% if minorities accepted the offer. This meant RVF would not need the backing of other shareholders if it wanted to delist.
Taste CEO Tyrone Moodley did not respond to questions e-mailed to him on why the rights offer was lower than the market price, and whether the group was considering a delisting.
Clark is not a fan of how the group has been run over the past few years. He says the scale of the value destruction can be seen in the difference in the current and previous rights offers. “A year ago it raised over R390m at 90c a share. Now it only wanted to raise around R130m at 10c”.
The money it got from its previous rights issue was used to pay off R270m in debt. The latest rights offer came despite it now having access to a R200m loan facility provided by RVF.
The scale of its cash flow problems could be seen in it attempting to preserve cash by putting the brakes on the rollout of its Starbucks and Domino’s outlets.
Clark said not including the R200m loan facility, he had worked out that Taste has enough cash to keep it going for about 18 months. If the latest rights offer was not approved, it could be in real trouble.
“This is the last throw of the dice,” he said.
For the rights offer to be accepted, 75% of its shareholders need to back it at a meeting on January 18. This means that apart from RVF’s 66% holding, the offer still needs the backing of shareholders who collectively held about 10% of the group to be approved.