Another bite at the cherry
With Riskowitz Value Fund now having a dominant control position in Taste, a shake-up lies ahead
Beleaguered Taste, owner of US heavyweight fast-food brands Starbucks and Domino’s Pizza in SA, has lived to fight another day.
Its reprieve is thanks to a R398m rights issue underwritten by Riskowitz Value Fund (RVF).
A hedge fund with a solid track record, RVF is based in New York City and was founded by expat South African Sean Riskowitz.
RVF focuses on companies listed on the JSE. With RVF now having a dominant control position in Taste, a shake-up lies ahead.
“In the next few weeks we will be making an announcement on big changes,” says Riskowitz.
Without RVF, Taste’s chances of survival were slim to nil. With the ultra-small cap running up losses at an alarming rate — R198m at the headline level in the 18 months to August — it was on the verge of running out of cash.
The R398m rights issue that saved the day was finalised in January and was Taste’s largest yet, its second in nine months and fourth since August 2014.
“[Taste] has raised R1.056bn of new equity from rights [issues] and burnt through R1.4bn of shareholder funds,” notes Anthony Clark of Vunani Securities in a recent analysis.
The latest rights issue was engineered to ensure that RVF and its Jse-listed affiliate Conduit Capital would gain dominant control of Taste.
Riskowitz is also CEO of Conduit, a specialist insurer and investment company.
The issue, which virtually doubled the number of Taste ordinary shares in issue, was pitched at 90c/share compared with its share price of around 40c/share at the time of its announcement in November.
Taste is now trading in a range of 70c-85c. RVF and Conduit got their way with only 13.84% of rights issue shares taken up by minority shareholders.
“We [RVF and Conduit] now have a combined stake of 66% in Taste,” says Riskowitz. Prior to the rights issue their combined stake was 38.3%.
RVF dominates with a 51% stake, with Conduit holding the 15% balance. But RVF is no newcomer to Taste.
“We started buying in 2009,” says Riskowitz. With its stake now worth around R355m and Conduit’s R105m they are betting big on Taste’s ability to succeed where it has so far failed badly.
“We believe in the long-term upside potential of Starbucks and Domino’s,” says Riskowitz confidently.
But even the extra R398m injected by the rights issue will not go far. After repaying term debt of R273m Taste is left sitting with only an extra R125m to work with.
With a price tag of R6m for a new Starbucks store, R125m will not go far towards achieving Taste CEO and founder Carlo Gonzaga’s vision of eventually having 150-200 stores across SA. In the almost two years since Taste opened the first Starbucks here it has managed to reach a total of only nine stores.
Progress with Domino’s stores, which come at a cost of R1.8m each, has also been disappointing since the first store opened in April 2014. There are now about 105 Domino’s stores, most of which formerly traded under Taste’s Scooters and St Elmo’s brands, of which there were originally 140.
Somehow Taste will need to raise more capital. It could mean a second attempt to sell its 79-store luxury goods division comprising jewellery business NWJ and luxury watch specialist Arthur Kaplan.
The first attempt announced in April 2017 was aborted three months later when a buyer willing to pay Taste’s asking price — reputed to have been about R400m — could not be found.
Taste could hardly have picked a worse time to sell the division. Hit by plunging demand for luxury goods it was left nursing an 82% profit slump in the six months to August.
Riskowitz is not deterred and leaves little doubt that the luxury goods division is earmarked for sale.
“There was a lot of uncertainty at the time the previous sale was attempted,” he says.
“Next time we will do the job correctly and find a buyer at a realistic price for what are quality assets.”
With RVF in control of Taste, changes are already being made. Just announced are big changes to the group’s board. On their way out are four nonexecutive directors including Kevin Utian, a board member since 2000.
Four new directors are coming in, including Neil Brimacombe who until January 2017 served as an executive director of Tiger Brands.
“A fresh set of eyes is always useful,” says Riskowitz.
One can only speculate if in Riskowitz’s quest for new blood the replacement of Gonzaga as CEO is also not on the cards.