Has Grand Parade had its fill of Spur?
Both companies have put out cautionary announcements that indicated a transaction was being mulled
Efforts to restore value at Grand Parade Investments (GPI) could result in the deeply discounted empowerment counter disposing of its influential 18.9% stake in restaurant franchiser Spur Corp at a loss.
GPI, which owns the local Burger King master franchise as well as valuable gaming assets, came under concerted pressure from shareholder activists last year after mounting losses in its food division and poor capital allocation decisions.
The activists forced through board changes at a special shareholders’ meeting — most notably the appointment of former Spur CFO Ronel van Dijk and former SABMiller executive Mark Bowman as nonexecutive directors. At the same time, activist investor Value Capital Partners — which is involved in turnaround efforts at Sun International, Adcorp and Altron — emerged as a shareholder of influence at GPI.
The upshot is that while GPI’s stock has clawed back 56% of its value within a year, over five years it is still 47% lower.
On Monday GPI and Spur issued cautionary announcements that indicated a transaction was being mulled.
This would be the second cull in GPI’s food division this year. In February, GPI — after persistent pressure from activist shareholders — put its loss-making Dunkin’ and Baskin-Robbins outlets into liquidation.
A likely outcome from the cautionaries is that cash-flush Spur — which is battling for growth traction in a tough trading environment — will buy back GPI’s Spur stake. The shares could then be warehoused, and issued later in another empowerment transaction.
Punters have previously speculated that Cape Town-based empowerment group Brimstone Investment Corp — which has a food bias in its investment portfolio — could be a possible BEE partner at Spur.
GPI is likely to lose on such a deal. The group acquired a 10% stake in Spur in mid-2014 for around R300m. The effective buy-in price was around R27 a share. Spur shares are now almost 20% lower, and GPI’s shareholding will at best probably only attract a small premium to market value.
GPI could mobilise the proceeds from a sale of Spur shares to fund the further roll-out of Burger King stores to a profitable critical mass.
Some market watchers have suggested that GPI relinquish operational control of Burger King to an experienced fast-food operator, retain only a passive stake and revert to being an investment company.
But Spur, whose smash burger brand, RocoMamas, has suddenly lost flavour, is unlikely to want to take control at Burger King. Investors at Spur seemed to think it was a good deal, though. After the cautionary announcement, its stock rose 3.3%, as beaten-down shareholders seemed to rediscover their taste for life.