Listed empowerment group Grand Parade Investments has signed a binding offer to sell 100% of its interest in Burger King South Africa to Africa-focused private equity firm Emerging Capital Partners for R670 million, it announced on Wednesday.
GPI also agreed to sell its Grand Food Meat Plant, with an enterprise value of R27 million, to ECP.
GPI acquired the South African master franchise for the iconic global Burger King brand in 2012. BKSA sources more than 90% of its ingredients from local suppliers, including the Whopper patty, produced by the Grand Food Meat Plant. BKSA currently employs more than 2 800 people.
GPI CEO Mohsin Tajbhai told Fin24 on Wednesday that the parties had been negotiating a possible deal "for some time". The deal is still subject to the signing of a share purchase agreement and then obtaining shareholder and Competition Commission approval.
"We hope to close the deal in the next couple of months," said Tajbhai. He added that GPI's focus last year was to restructure the business and to improve the profitability of its operational food businesses.
A strategic decision was taken to reduce GPI's operational involvement in BKSA. Bids were received from various interested buyers before the offer received from ECP was found to be the highest and accepted.
"It became part of our strategy at GPI to go back to be an investment holding company and we set out to see how we could unlock value from GPI, " explained Tajbhai.
"With changes made the last 18 months, we got BKSA to be profitable, but it would still require about R150 million for BKSA to be pre-cashflow positive. That is why we decided the best way to unlock value for all our shareholders would be a controlled sale of this asset."
The GPI board has also decided that, going forward, it wants to unlock more value through the controlled sale of other assets too in its aim to maximise the value of its assets.
"We have very valuable, saleable assets like SunWest, the Worcester Casino, Mac Brothers, Spur and our property portfolio. We will be looking into selling these too and undergo a process to return capital back to shareholders," said Tajbhai.
"The key message GPI is sending is that these are controlled sales. If we do not get what we feel the assets are worth, we will hang on to them."
Asked why ECP would be interested in BKSA, Tajbhai said they are taking an optimistic view of the SA environment, and also have a much stronger balance sheet.
"They can grow the business a lot more aggressively than we can. They are also an experienced player in this sector and will probably expand BKSA a lot more than we could at this stage," responded Tajbhai.
Paul Maasdorp, managing director and partner at ECP, echoed this.
Asked why the interest in buying Burger King SA, Maasdorp told Fin24 that it is an iconic brand, offering excellent value in flame-grilled food at affordable prices.
Double the number
"In our mind there are lots of opportunities in continuing with what GPI has already managed to do in turning around the Burger King asset. With our experience in the sector, we believe we can grow the brand in SA. We plan to double the number of stores in SA over the next few years. We also believe that, with our experience, we can help the BKSA team to strategically and correctly target relevant locations," said Maasdorp.
"Even in a tight economy, people go for value meal offerings that are fast and easily accessible. With increasing numbers of dual working families in particular, there is less time to cook at home and so we see more people eating out."
He says ECP also sees an opportunity to expand the actual offering of Burger King in SA.
"There are different elements offered in Burger King globally which are not yet on offer in SA. We are working with the master global franchisee to bring some of those to SA, most notably the enhanced Whopper and some vegetarian offerings," said Maasdorp.
He added that the core strategy of ECP would be to continue to hold and manage the BKSA stores mainly under one single umbrella instead of selling off franchises.
On Wednesday the GPI share price closed 9.09% higher at R3.60 per share.