REG - DP Eurasia N.V - Response to Revised Offer from Jubilant Foodworks

DP Eurasia NVAnnouncement

19/12/2023 10:15

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RNS Number : 3010X  DP Eurasia N.V  19 December 2023

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR
INDIRECTLY IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A
VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION

FOR IMMEDIATE RELEASE

19 December 2023

DP Eurasia N.V.

("DP Eurasia" or the "Company", and together with its subsidiaries, the
"Group")

Response to Revised Offer from Jubilant Foodworks

Introduction

DP Eurasia, the master franchisee of the Domino's Pizza brand in Turkey,
Azerbaijan and Georgia, notes the announcement earlier today by Jubilant
Foodworks Netherlands B.V. ("Jubilant Foodworks"), a wholly owned subsidiary
of Jubilant Foodworks Limited ("Jubilant"), of its revised cash offer of 95
pence per share (a "DP Eurasia Share") for the entire issued and outstanding
share capital of the Company not already owned by Jubilant Foodworks  (the
"Revised Offer").

While the Revised Offer supersedes Jubilant Foodworks' initial offer of 28
November 2023 at a price of 85 pence per DP Eurasia Share (the "Initial
Offer"), the non-conflicted members of the board of the Company (the "Board")
have determined that it is significantly below what they consider to be the
fair value of the DP Eurasia business and its prospects, particularly
considering its continued strong performance as detailed below.

As a result, the Board, having taken advice from its financial advisors,
Liberum, has concluded that it is not recommending the Revised Offer and
continues to urge minority shareholders to take no action.

Current Trading and EBITDA Forecast

·     Further to its trading update of 28 November 2023 for the period
ended 31 October 2023, the Company has continued to trade well and, as a
result, confirms it now expects to marginally exceed the EBITDA guidance for
FY 2023 of TRY 696 million provided at that time.

·     The Board reviewed the FY 2023 outturn and FY 2024 draft budget
during a Board meeting (including the directors appointed as representatives
of Jubilant) held on 23 November 2023 and the profit forecasts presented below
are as of that date (the "Profit Forecasts").

·     The Profit Forecasts have not been subject to audit or third-party
review but are presented after due enquiry by the Board as follows:

o  FY 2023 EBITDA of approximately TRY 713 million (approximately GBP 24.1
million)

o  FY 2024 EBITDA of approximately TRY 1,245 million (approximately GBP 30.7
million)

o  FY 2023 year-end net debt of approximately TRY 653 million (approximately
GBP 17.8 million)

Turkish Lira ("TRY") with Pounds Sterling ("GBP") equivalents being converted
using average TRY:GBP exchange rates of 29.6 and 40.5, respectively for FY
2023 and FY 2024 EBITDA and spot rate of 36.7 for FY 2023 net debt.

Valuation References

The Board acknowledges that the valuation of the Company is complicated by the
hyper-inflationary environment in Turkey. Multiple valuation methodologies
have been considered and triangulated with Liberum, the Company's financial
advisers, in reaching the conclusions on value.

The table below illustrates the trading EV/EBITDA valuation multiples for the
listed Domino's franchises (the "DP Peer Group") based on consensus
estimates.

 

 Company                             Master Franchise Jurisdictions                                            CY* 23 EV/EBITDA  CY 24 EV/EBITDA
 DP Poland PLC                       Poland and Croatia                                                        21.8x             16.6x
 Domino's Pizza Group plc            UK and Ireland                                                            14.3x             13.2x
 Domino's Pizza Enterprises Limited  Australia, New Zealand, Belgium,                                          18.7x             15.6x

                                     France, the Netherlands, Japan, Germany, Luxembourg, Denmark, Cambodia,
                                     Taiwan, Malaysia and Singapore
 Average                                                                                                       18.3x             15.1x

Source: Bloomberg

* CY = calendar year

 

Illustratively, this compares with the implied trading EV/EBITDA multiples
indicated below for the Company at the Revised Offer and based upon the Profit
Forecasts.

             CY 23 EV/EBITDA  CY 24 EV/EBITDA
 DP Eurasia  6.5x             5.1x

 

Further to the DP Peer Group trading EV/EBITDA multiples, the Board wishes to
draw minority shareholders attention to Jubilant's current trading EV/EBITDA
multiples shown below.

           CY 23 EV/EBITDA  CY 24 EV/EBITDA
 Jubilant  33.7x            26.8x

Source: Bloomberg

 

Notwithstanding the Company's growth prospects, the Board acknowledges that DP
Eurasia may not be valued at quite the same trading EV/EBITDA multiples as the
DP Peer Group, particularly due to the macro-economic environment in Turkey.
Despite this, the relative valuations illustrate why the Revised Offer is an
excellent transaction for Jubilant and a very poor one for the minority
shareholders.

 

Risks to, and protections for, Minority Shareholders regarding the Revised
Offer

·     Governing jurisdiction: the Revised Offer is subject to the
mandatory offer provisions set out in the Company's articles of association
and the terms set out in the Revised Offer. These provisions are more limited
than those set out in the United Kingdom's Takeover Code or in the equivalent
takeover legislation of the Netherlands. As a result, shareholders have
significantly less protections and rights than they might otherwise have.

·     Revised Offer acceptance period: in its announcement today,
Jubilant Foodworks has indicated that the deadline for acceptance and
settlement is 1.00 p.m. (London time) on 18 January 2024. Accordingly, the
Revised Offer will remain available to shareholders until such time (or any
amended deadline announced by Jubilant Foodworks, provided always that the
Revised Offer is required under the articles of association of the Company to
be open for acceptance for a period of at least 21 days after the Revised
Offer is made).

·     Lack of withdrawal rights: the terms of the Revised Offer
summarised in Jubilant Foodworks' announcement today do not include any right
for a shareholder that accepts (and is thereby bound by) the Revised Offer to
withdraw its acceptance, even if Jubilant Foodworks subsequently makes a
higher offer to other shareholders during the Revised Offer period.

·     Subsequent higher offer: once the Revised Offer has closed in
accordance with its terms, Jubilant Foodworks is not prohibited from
subsequently making a higher offer either to an individual shareholder or the
remaining shareholders who did not accept the Revised Offer and making such a
subsequent higher offer to one or more shareholders will not trigger another
mandatory tender offer to all of the remaining shareholders.

·     Delisting, cancellation of trading, conversion and post-closing
restructuring: Jubilant Foodworks' stated intention is that the Company's
listing on the London Stock Exchange will be cancelled after it acquires or
agrees to acquire shares carrying 75% of the voting rights of the Company
(which would also represent the acquisition or agreed acquisition of a
majority of the voting rights held by the independent shareholders on 28
November 2023, the date its firm intention to make the Offer was announced).
Consequently, if that 75% threshold is reached, the Company's listing on the
London Stock Exchange would be cancelled and remaining shareholders would then
hold their shares in an unlisted company.

If the DP Eurasia Shares are delisted, Jubilant Foodworks has stated that it
intends to procure that DP Eurasia be converted into a Dutch private company
with limited liability (besloten vennootschap met beperkte aansprakelijkheid).

The delisting of the DP Eurasia Shares and the conversion of DP Eurasia into a
Dutch private company with limited liability will significantly reduce the
liquidity and marketability of the DP Eurasia Shares in respect of which the
Revised Offer has not been accepted at that time and their value may be
affected as a consequence. Any remaining DP Eurasia shareholders will, in this
case, become minority shareholders in a majority controlled private company
with limited liability and may therefore be unable to sell their DP Eurasia
Shares.

In the event that the delisting of the DP Eurasia Shares and the conversion of
DP Eurasia into a Dutch private company with limited liability, Jubilant
Foodworks may seek to effect or a cause to effect a restructuring of DP
Eurasia. Some of the restructuring options may have the effect of diluting the
shareholding of minority DP Eurasia shareholders, including a post-Revised
Offer asset sale, the dissolution and liquidation of DP Eurasia, a statutory
squeeze-out in accordance with Dutch law, a subsequent public offer and a
statutory cross-border, bilateral or triangular merger.

·     Minority shareholder protections: the Jubilant group's relationship
agreement with the Company remains in effect whilst the Company is listed and
admitted to trading on the London Stock Exchange. Under the relationship
agreement, the Jubilant group is required to adhere to governance obligations
which prohibit Jubilant group members from taking actions that would affect
the ability of the Company to carry on its business independently of the wider
Jubilant group. It is also bound under that agreement to exercise its voting
rights to ensure continued independence of the Board and that the Company is
managed in accordance with principles of good governance set out in the UK
Corporate Governance Code (including as to independence). Consequently, for so
long as the Jubilant group does not acquire or agree to acquire shares
carrying 75% of the voting rights of the Company (and thereby is not able to
effect the de-listing of the Company), the Company and its minority
shareholders will continue to benefit from these protections. Under these
circumstances the Board can continue to defend the Company and is determined
to do so. If Jubilant Foodworks is successful in delisting the Company, the
relationship agreement will no longer apply.

 

Analysis of and Recommendation by the Board

The Board has carefully considered the Revised Offer and concluded that it
remains significantly below what the Board believes to be the fair value of
the DP Eurasia business and does not reflect its prospects, particularly in
light of its continued strong performance.

Furthermore, the Revised Offer of 95 pence is at the same level to which
Jubilant Foodworks attempted, in September 2021, to increase its stake in the
Company to 49.99% through a reverse bookbuild but only succeeded in increasing
its stake to 39.79% as shareholders were not supportive of an acquisition at
that price. Since then, between the years ending December 2021 and December
2023, notwithstanding the extraction of the Company from its involvement in
the Russian market following the Ukraine war, the Company has:

·     on an IAS 29 basis, increased revenue and EBITDA by approximately
40.9% and 40.1%, respectively;

 

·     organically established a coffee brand in Turkey, COFFY, which has
diversified the Company's revenue, de-risked revenue generation and provided a
second key driver for future growth in addition to the Domino's brand. At the
end of 2023, the Company expects to have 25 corporate and 69 franchise COFFY
stores and is planning on continuing the fast growth of this successful new
chain;

 

·     increased Domino's store count by 85 from 621 to 706; and

 

·     de-leveraged the balance sheet from 3.0x to approximately 0.9x Net
Debt/EBITDA.

 

The Board has engaged collaboratively with Jubilant since 28 November 2023 to
both better understand Jubilant's intentions and to relay the Board's and
minority shareholders' concerns.

The Company suffers from extremely limited minority protection rights in
takeover situations due to the fact that it is neither subject to the United
Kingdom's Takeover Code nor to any EU takeover provisions despite its listing
in the United Kingdom and being incorporated in the Netherlands. In addition,
despite being a good commercial partner, Jubilant has sought to exploit this
to its advantage by seeking to take full control and de-list the Company
without offering fair value, to the detriment of minority shareholders.
Furthermore, by virtue of its representation on the board of the Company, the
Boardbelieves that Jubilant is well aware of just how much growth potential
exists.

As such, the Board is disappointed that the Revised Offer does not provide an
adequately attractive increase in price for the Board to be able to change
their position in so far as the Revised Offer still:

·     significantly undervalues DP Eurasia;

·     continues to have minimal support based upon feedback received from
minority shareholders; and

·     does not recognise the fundamental growth potential of DP Eurasia,
including its COFFY business.

Accordingly, the Board, having been advised by Liberum, confirms its unanimous
and unequivocal recommendation that shareholders do not accept Jubilant
Foodworks' Revised Offer.

The Board intends to continue to engage with Jubilant with the aim of
achieving an offer price that fairly values DP Eurasia and which the Board
would be prepared to recommend.

The Board strongly advises DP Eurasia shareholders to take no action at this
time and remind them their unified stance is vital in preserving the best
outcome for all shareholders.

 

Enquiries

 DP Eurasia N.V.
 İlknur Kocaer, CFA - Investor Relations Director               +90 212 280 9636

 Buchanan (Financial Communications)
 Richard Oldworth / Toto Berger / Verity Parker                 +44 20 7466 5000

                                                                dp@buchanan.uk.com (mailto:dp@buchanan.uk.com)
 Liberum (Financial Adviser, Corporate Broker)

 Corporate Broking: Andrew Godber / Edward Thomas / Will King   +44 20 3100 2000

 M&A: Tim Medak / Mark Harrison / Matt Hogg

Important Notices

For the purposes of the matters referred to in this announcement, the Board
comprises the directors of the Company excluding those directors recused by
reason of conflict of interest. Those directors so recused are Shyam S.
Bhartia and Hari S. Bhartia (both of whom are appointees connected with
Jubilant) and Aslan Saranga, the Company's Chief Executive Officer, who is
recused by reason of the conflict of interest in light of his discussions with
Jubilant Foodworks on his shareholding in the Company and his likely
continuation as CEO. References in this announcement to the "Board" are to be
construed accordingly.

Liberum Capital Limited ("Liberum"), which is authorised and regulated in the
United Kingdom by the FCA, is acting as financial adviser exclusively for the
Company and no one else in connection with the matters set out in this
announcement and will not regard any other person as its client in relation to
the matters set out in this announcement and will not be responsible to anyone
other than the Company for providing the protections afforded to clients of
Liberum, nor for providing advice in relation to the contents of this
announcement or any other matter referred to herein. Neither Liberum nor any
of its subsidiaries, branches or affiliates owes or accepts any duty,
liability or responsibility whatsoever (whether direct or indirect, whether in
contract, in tort, under statute or otherwise) to any person who is not a
client of Liberum in connection with this announcement, any statement
contained herein or otherwise. Neither Liberum nor any of its affiliates nor
any of their respective directors, officers, employees, advisers or agents
accepts any responsibility or liability whatsoever for, or makes any
representation or warranty, express or implied, as to, the truth, accuracy or
completeness of the information in this announcement (or whether any
information has been omitted from the announcement) or any other information
relating to the Company.

This announcement is not intended to, and does not, constitute or form part of
any offer, invitation or the solicitation of an offer to purchase, otherwise
acquire, subscribe for, sell or otherwise dispose of, any securities, or the
solicitation of any vote or approval in any jurisdiction, pursuant to this
announcement or otherwise. The distribution of this announcement in
jurisdictions other than the United Kingdom and the availability of any offer
to shareholders of the Company who are not resident in the United Kingdom may
be affected by the laws of relevant jurisdictions. Therefore, any persons who
are subject to the laws of any jurisdiction other than the United Kingdom or
shareholders of the Company who are not resident in the United Kingdom will
need to inform themselves about, and observe any applicable requirements.

 

Forward-looking statements

This document, including information included or incorporated by reference in
this document, may include statements that are, or may be deemed to be,
"forward-looking statements". These forward-looking statements may be
identified by the use of forward-looking terminology, including the terms
"targets", "believes", "estimates", "plans", "projects", "anticipates",
"expects", "intends", "may", "will" or "should" or, in each case, their
negative or other variations or comparable terminology, or by discussions of
strategy, plans, objectives, goals, future events or intentions. These
forward-looking statements include all matters that are not historical facts
and involve predictions. Forward-looking statements may and often do differ
materially from actual results. Any forward-looking statements reflect the
Company's current view with respect to future events and are subject to risks
relating to future events and other risks, uncertainties and assumptions
relating to the Company's business, results of operations, financial position,
liquidity, prospects, growth or strategies and the industry in which it
operates. Forward-looking statements speak only as of the date they are made
and cannot be relied upon as a guide to future performance. There are many
factors that could cause actual results to differ materially from those
expressed or implied in forward-looking statements. Among such factors are
changes in the global, political, social, economic, business, competitive,
market and regulatory forces, future exchange and interest rates, changes in
tax rates, future business combinations or disposals, and any epidemic,
pandemic or disease outbreak.

These forward-looking statements are based on numerous assumptions regarding
the present and future business strategies of such persons and the environment
in which each will operate in the future. By their nature, these
forward-looking statements involve known and unknown risks and uncertainties
because they relate to events and depend on circumstances that will occur in
the future. The factors described in the context of such forward-looking
statements in this document may cause the actual results, performance or
achievements of any such person, or industry results and developments, to be
materially different from any results, performance or achievements expressed
or implied by such forward-looking statements. No assurance can be given that
such expectations will prove to have been correct and persons reading this
document are therefore cautioned not to place undue reliance on these
forward-looking statements that speak only as at the date of this document.
All subsequent oral or written forward-looking statements attributable to the
Company or its affiliates or any persons acting on its behalf are expressly
qualified in their entirety by the cautionary statement above. The Company
does not intend, nor undertakes any obligation, to update publicly or revise
forward-looking statements, whether as a result of new information, future
events or otherwise, except to the extent legally required.

 

UK Market Abuse Regulation

This announcement contains inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014 of the European Parliament and the Council of 16
April 2014 as it forms part of domestic law in the United Kingdom by virtue of
the European Union (Withdrawal) Act 2018.

 

 

 

Appendix I

Sources and Bases of Information

 

1.    Any reference to issued share capital is based on the number of DPEU
Shares currently in issue, which is 146,590,620 shares.

 

2.    All figures exclude Russian business which is now a discontinued
operation, except the stated FY21 Net Debt/EBITDA figure of 3.0x.

 

3.    Inflation rates used in the calculation of the Profit Forecasts for
2023 and 2024 are 54.0% and 60.0%, respectively, derived from the IMF World
Economic Outlook database and management expectations.

 

4.    GBP:TRY forecast exchange rates for 2023 and 2024 of 29.6 and 40.5
are derived from FactSet and Bloomberg.

 

5.    GBP:TRY spot exchange rate of 36.7 rate is derived from Bloomberg as
at 18 December 2023.

 

6.    DP Peer Group and Jubilant EV/EBITDA multiples are derived from
Bloomberg and presented on a calendar year ("CY") basis.

 

7.    The presented EBITDA figures are adjusted EBITDA. Adjusted EBITDA
doesn't include the one-off income/expenses and share base payments. These
items are determined by the principles defined by Group management and
comprise income/expenses which are assumed by Group management to not be part
of the normal course of business and are non-trading items.

 

8.    The presented net debt is adjusted net debt which is not defined by
IFRS. Adjusted net debt includes cash deposits used as a guarantee of lease
liabilities related to franchisee rent agreements and cash paid, but not
collected during the non-working day at the year end. Management uses these
numbers to focus on net debt including deposits not otherwise considered cash
and cash equivalents under IFRS.

 

9.    DP Eurasia Profit Forecasts for the period ending 31 December 2024
are derived from a bottom-up budget developed internally. The primary driver
of growth in the period will be Domino's and COFFY store expansion, of which
the target new store numbers are outlined below and compared to the current
2023 period end estimates.

 

 New Franchise and Corporate Stores  31 December 2023E  31 December 2024E
 Domino's                            35                 60
 COFFY                               65                 70

 

10.  Unless stated, all figures are presented on a pre-IAS 29 basis.

 

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