No love lost as Grand Parade and Spur part ways
Spur wants to buy those shares back as it does not want GPI to be able to freely trade them
Grand Parade Investments (GPI) has sold its 10% stake in Spur Corporation back to the steakhouse company, freeing it up to focus on its Burger King franchise.
The company has been struggling to make a success of its international food franchises and in February this year liquidated its loss-making Dunkin’ and Baskin-Robbins outlets.
In 2014 Spur sold 10.8-million, or 10%, of its shares to the black empowerment firm GPI for R294.7m in a deal that included a five-year “lock-in period” to end-October 2019.
On Thursday GPI said it would dispose of its shares, which would be repurchased by Spur Corp for R260.4m. GPI said it would use the proceeds to reduce debt in order to improve profitability and cash generation.
As it already indicated in March last year, GPI was looking to shed part of its Spur stake and invest the proceeds in its Burger King business which, it said at the time, had shown positive results.
But in March 2019 , Burger King’s headline loss in the local market widened 66% to R9.5m in the six months ended December 2018. Despite its revenues increasing by more than a third, Burger King’s loss grew partly because of some underperforming restaurants, GPI said.
The Spur share sale aligns with the company’s strategy to “unlock value and create sustainability for all stakeholders”, GPI said.
In a separate statement, Spur said it wanted to buy the shares back as it did not want GPI to be able to freely trade them. It would pay R24 a share, a premium to Wednesday’s closing price. Its shares were last traded at R22.39.
“Spur has a sizeable cash balance with no immediate material investment opportunity that meets the investment criteria of its board,” it said.
“It is envisaged that the utilisation of its cash resources to implement the GPI repurchase will be beneficial to existing shareholders of the company, as it will enhance the company’s earnings, return on equity and future dividends.”
The company also announced on Thursday that it will repurchase 6.64-million shares held in the Treasury, representing 6.12% of the total issued share capital of Spur at a market value of R21.91 per share, for a total consideration of R145.39m.
Spur’s headline earnings per share in the six months ended December would have been 12.1% higher if the shares had already been repurchased then, it said.
Anthony Clark, an independent analyst at Small Talk Daily, said the agreement was a good move for all parties, but a better one for Spur.
“There has been no love lost between Spur and GPI for a number of years,” he said.
Spur was particularly unhappy when GPI, which sat on its board, moved into Burger King, a competitor to Spur’s operations, representing a huge conflict of interest in Spur’s eyes, Clark said.
“At the last AGM and the last results presentation, it was clear Spur wants GPI to get out of their company,” he said.
“It moves an irritant shareholder with conflicting interests from its board. It allows it (Spur) to be the master of its own destiny.” he said.
“All in all it’s been a merry venture for both parties, but [Spur Corp CEO] Pierre van Tonder is probably happy to get shot of Grand Parade Investments.”
For GPI, however, it has sold the stake back at below the initial transaction cost.
“That does not look good,” said Clark. “They’ve destroyed value.”
GPI has appointed Mohsin Tajbhai as CEO from July 1. Tajbhai has been acting in the position since January this year.