The recent decision by Spur to secure Grand Parade Investments (GPI) as it s BEE shareholder presents a fascinating decision for both companies. The two companies looked pitted to be serious contenders in the food space with GPI in the midst of launching the Burger King brand in South Africa. So, while GPI could certainly benefit from the experience and knowledge of Spur, what’s in it for Spur shareholders?
Spur CEO Pierre van Tonder, explains the rationale: “We have made a strategic decision to f inalise a BEE transaction in order to improve our BEE scorecard as this will benefit the group going forward in terms of securing licences and sites. Our intention was to source a BEE partner who would add value to the Group. We felt Grand Parade Investment was the most natural f it, considering their strategy for the next five to 10 years.”
The transaction will entail Spur issuing 10.8m new shares to GPI at an effective price of R27.16/share. This translates to an approximate 10% discount to the ruling price of Spur prior to the announcement, but there will be a lock-in period of f ive years. Of the total consideration of R295m, R150m will be funded by way of a Standard Bank preference share structure in the BEE company, R72.3m will be funded by Spur and GPI will invest R72.3m in cash. The transaction will result in a net cash inf low of R222.3m to Spur. GPI will have the right to appoint a director to the Spur board.
So how does this pan out for the competitive dynamics between the two companies? GPI, through Burger King, will compete directly with Spur while at the same time it will have a substantial investment in the business.
As per the Sens announcement: “The directors of Spur believe that GPI is a true commercial partner in addition to being a BEE shareholder.” Van Tonder says that there already appears to be obvious synergies. “They have purchased a 65% stake in Mac Brothers [a catering equipment manufacturer] from whom we source equipment. In product innovation, we have just invested R38m into a rib factory in Johannesburg which will come online towards t he end of the year and they are looking at making a s i milar Cents 3 600
Sep 2013 investment. So we think there are synergies that can be explored.”
Van Tonder believes the two companies are competing in a growing market. “We think there will be value putting the two companies on the same platform. This will start with the backend of both businesses – looking for scale and to see where the economics make sense. With a GPI director on the Spur board, we will have executive committee meetings every quarter and discuss strategy, but when a business opportunity presents itself, we will move immediately.” While there are obvious disadvantages with having a competitor so close to one’s cards, there may be some tangible benefits that will accrue to Spur shareholders. warrendick7@
Spur CEO Pierre van Tonder