REG - Jubilant Foodworks DP Eurasia N.V - Response to DP Eurasia statement

DP Eurasia NVAnnouncement

20/12/2023 07:15

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RNS Number : 4397X  Jubilant Foodworks Netherlands B.V.  20 December 2023

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 OF SUCH JURISDICTION.

THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE, OR
FORM PART OF, AN OFFER OR AN INVITATION TO PURCHASE, SUBSCRIBE FOR OR SELL ANY
SECURITIES OR A SOLICITATION OF ANY OFFER TO PURCHASE, SUBSCRIBE FOR OR SELL
ANY SECURITIES. THE OFFER REFERRED TO IN THIS ANNOUNCEMENT IS MADE SOLELY BY
WAY OF THE OFFER DOCUMENT WHICH CONTAINS THE FULL TERMS OF THE OFFER,
INCLUDING DETAILS OF HOW THE OFFER MAY BE ACCEPTED.

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

20 December 2023

Cash Offer for DP Eurasia N.V by Jubilant Foodworks

Response to DP Eurasia statement

On 28 November 2023, Jubilant Foodworks Netherlands B.V. ("Jubilant
Foodworks"), a wholly owned subsidiary of Jubilant Foodworks Limited,
announced its intention to make an offer for the entire issued and outstanding
ordinary share capital of DP Eurasia N.V. ("DP Eurasia") not already owned by
Jubilant Foodworks (the "Offer") at 85 pence per DP Eurasia Share (the
"Original Offer Price") (the "Offer Announcement").

On 19 December 2023, Jubilant Foodworks announced an increase to the Original
Offer Price to 95 pence per DP Eurasia Share (the "Offer Price") and the
publication of the offer document setting out the terms of the Offer (the
"Offer Document").

Jubilant Foodworks notes the announcement made on 19 December 2023 by DP
Eurasia that it is not recommending the Offer.

Jubilant Foodworks disagrees with DP Eurasia's assessment of the Offer as
being significantly below fair value and not reflecting the company's
prospects. Rather, Jubilant Foodworks believes the Offer presents an immediate
and certain enhanced return event to all shareholders of DP Eurasia at a fair
price based on historic share price performance, DP Eurasia share liquidity, a
peer group of comparable quick service restaurant companies, the wider
macroeconomic environment and intensifying competition in Turkey. Further
detail of each of these factors and the reasons why Jubilant Foodworks
considers the Offer to represent a fair price are included below.

Jubilant Foodworks notes that DP Eurasia's announcement was released prior to
the Offer Document becoming available on Jubilant Foodworks' website on 19
December 2023. Certain statements made in DP Eurasia's announcement therefore
appear to have been made without having first reviewed the Offer Document and
are in some cases incomplete and may be confusing to shareholders.
Shareholders are therefore encouraged to read the Offer Document in full
(which is available from Jubilant Foodworks' website at
https://www.jubilantfoodworks.com/ (https://www.jubilantfoodworks.com/) )
including the full terms of the Offer set out in Part II of the Offer Document
and in particular paragraph 3 in Section A of Part II. Jubilant Foodworks has
suggested to DP Eurasia through its advisers that they clarify any misleading
statements by way of a regulatory news service on the London Stock Exchange.

Separately, Jubilant Foodworks also wishes to make reference to DP Eurasia's
statement in its announcement that the company "suffers from extremely limited
minority protection rights in takeover situations" due to it not being the
subject of the UK's Takeover Code nor any EU takeover provisions. Jubilant
Foodworks disagrees with DP Eurasia's suggestion that it has sought to exploit
the absence of such regulation to its advantage and to the detriment of
minority shareholders.

Shareholders are reminded that the Mandatory Bid Provisions in DP Eurasia's
articles of association (which the Offer is being made in accordance with)
were last year agreed with the then independent committee of the Board of DP
Eurasia and were unanimously recommended by the then Directors of DP Eurasia
to all shareholders that they vote in favour of their introduction. At the
time, the relevant Directors referred to the provisions as providing
shareholders with "substantially similar protections" to those provided under
historic UK and Dutch takeover regulation, as well as the then Chair of DP
Eurasia referring to them providing "satisfactory safeguards to minority
investors". Jubilant Foodworks supported the amendments to the articles of
association when they were introduced, to the detriment of its own ability to
increase its shareholding, as it takes minority investor rights seriously.

Jubilant Foodworks wishes to make clear that it has and is following and
complying with the very provisions (being the Mandatory Bid Provisions in DP
Eurasia's articles of association) that were negotiated and agreed with the
Independent Committee, were recommended by the then Directors of DP Eurasia,
and approved by shareholders. Furthermore, such provisions were labelled by or
on behalf of DP Eurasia as providing substantially similar protections under
historic takeover regulation, as well as providing satisfactory safeguards to
minority investors. Accordingly, Jubilant Foodworks disagrees with DP
Eurasia's suggestion that it is acting to the detriment of minority
shareholders when it is following and complying with the very provisions that
were introduced by DP Eurasia to afford that protection and which were
explicitly labelled by it as such.

Finally, Jubilant Foodworks also wishes to highlight that as an unconditional
offer, settlement for those shareholders who accept the Offer will be effected
within 14 calendar days of receipt of that acceptance, thereby providing such
shareholders with an immediate and certain enhanced return event.

Valuation

DP Eurasia has stated that multiple valuation methodologies have been
considered and triangulated with Liberum but has only highlighted one peer
group multiple based valuation that Jubilant Foodworks considers inadequate.

Jubilant Foodworks acknowledges that certain Domino's Pizza franchisees,
including itself, trade at high valuations. However, the Jubilant Foodworks
Directors believe that the hyper-inflationary environment in Turkey makes
comparisons with Domino's Pizza Group plc and Domino's Pizza Enterprises
Limited whose businesses primarily operate in stable developed markets of
limited value.

DP Eurasia has excluded from its limited analysis Dominos' Pizza franchisees
trading at lower multiples, such as Alsea which has a similar 2023 consensus
forecast EBITDA margin (19.8%) to DP Eurasia (19.0%) and operates corporate
owned and franchised quick service restaurants in Mexico, a country with a
2022 GDP per capita of $11,091, very similar to Turkey at $10,616
(Macrotrends). Jubilant Foodworks believes a peer group of listed emerging
markets quick service restaurant businesses is more representative of the
value of DP Eurasia.

 Peer                              Main countries of operations                        EV/EBITDA 2023  EV/EBITDA 2024
 Alsea SAB de CV                   Mexico, Spain                                       6.1 x           5.6 x
 Amrest Holdings SE                Central & Eastern Europe, Russia, Spain, China      8.2 x           6.8 x
 Berjaya Food Bhd                  Malaysia/Indonesia                                  6.1 x           6.6 x
 Shakey's Pizza Asia Ventures Inc  Philippines                                         9.3 x           7.5x
 Sphera Franchise Group SA         Romania                                             7.2 x           5.8 x
 Zamp SA                           Brazil                                              6.2 x           5.8 x
 Average                                                                               7.2 x           6.4 x

Source: Refinitiv Eikon

Jubilant Foodworks believes DP Eurasia's 2023 EBITDA forecast is flattered by
the use of an average exchange rate. With a depreciating currency, the EBITDA
is more accurately valued using the current spot rate. On this basis, at the
Offer Price, DP Eurasia is valued at 8.1x its 2023 forecast EBITDA, ahead of
comparable peers.

Furthermore, the average multiple DP Eurasia has traded at since 2021 on a NTM
EV/EBITDA basis has been 7.3x. DP Eurasia has not traded at a valuation close
to the DP Peer Group referenced by DP Eurasia (18.3x for CY23 EV/EBITDA and
15.1x for CY24 EV/EBITDA) over the last three years. Therefore, the average of
the DP Peer Group referenced by DP Eurasia is at best an aspirational
valuation and at worst an erroneous comparison.

Jubilant Foodworks reminds shareholders that DP Eurasia recommended that
shareholders did not tender their shares in accordance with the terms of the
reverse bookbuild at 95p per share in 2021 (the "RBB"). The DP Eurasia close
price did not exceed the RBB price between closure of the RBB on 1 November
2021 and the Offer Announcement so shareholders who followed the DP Eurasia
Board recommendation did not benefit from any incremental value. Those
shareholders who did not tender their shares and subsequently sold may have
suffered financial losses compared to shareholders who sold their shares in
the reverse bookbuild.

Finally, Jubilant Foodworks recognises DP Eurasia is covered by only one
broker meaning that the market consensus forecasts are driven by one party
and, as such, it therefore views with caution such market consensus forecasts.

As mentioned above, Jubilant Foodworks believes the Offer presents an
immediate and certain enhanced return event to all shareholders of DP Eurasia
at a fair price and, in addition to the above, DP Eurasia shareholders should
note the following factors concerning DP Eurasia's share liquidity, the wider
macroeconomic environment and the intensifying competition in Turkey.

DP Eurasia's share liquidity:

DP Eurasia's shares are highly illiquid with an average daily volume of just
68,692 shares in the twelve months to 27 November 2023 (being the last
practical date before the Offer Announcement) causing volatility in the share
price and difficulties for shareholders who wished to sell a meaningful stake
through the market. When a significant shareholder sold their 4.3% position in
October 2022, Jubilant Foodworks believes they were the only buyer of size and
enabled them to exit at the market price.

Jubilant Foodworks reminds shareholders that there is no requirement for it to
make another offer for DP Eurasia in the future as the Offer will satisfy the
one time obligation to make such an offer as is required by the Mandatory Bid
Provisions under DP Eurasia's articles of association. Liquidity may be
further reduced following the Offer exacerbating exit challenges for remaining
shareholders.

Macroeconomic environment:

DP Eurasia's Turkish business has performed well and continues to deliver on
the company's strategy with system sales growth of c.35% for Turkey Domino's
Pizza and c.299% for COFFY in the ten months ended October 2023. However,
hyperinflation causing depreciation in the value of the Turkish lira has
consistently eroded DP Eurasia's pound sterling valuation. A highly
inflationary environment in Turkey is expected to persist and further weaken
the Turkish lira.

The Central Bank of Turkey increased its benchmark interest rate to 40% in
November 2023. High interest rates increase the cost to DP Eurasia of
servicing its TRY denominated debt, forecasted by DP Eurasia to be TRY 653
million (£17.8 million) at the end of 2023, and negatively impact the
company's profitability.

Competition:

Low barriers to entry in the quick service restaurant industry are driving
intensifying competition across the Turkish pizza market making it an
increasingly challenging landscape to operate in. Aggressive marketing
campaigns, digitalisation, dynamic and competitive pricing are being deployed
by all market participants. As part of the Jubilant Foodworks group, DP
Eurasia could benefit from Jubilant Foodworks' experience in operating in a
highly competitive market.

Jubilant Foodworks has the operational expertise, as India's largest and most
profitable food service company, and the investment required to assist DP
Eurasia to remain competitive and grow its market share.

Terms used but not defined in this announcement shall have the same meaning as
set out in the Offer Document.

Enquiries:

 Jubilant Foodworks
 Siddharth Anand                siddharth.anand@jublfood.com

 Peel Hunt (Financial Adviser)  +44 (0) 20 7418 8900
 Oliver Jackson
 Rebecca Bankhead
 Monal Kathrecha

 

About Jubilant Foodworks

Jubilant FoodWorks Limited (NSE, BSE: JUBLFOOD), Jubilant Foodworks' parent
company, is India's largest foodservice company and is part of the Jubilant
Bhartia Group. Incorporated in 1995, the company holds the exclusive master
franchise rights from Domino's Pizza Inc. to develop and operate the Domino's
Pizza brand in India, Sri Lanka, Bangladesh and Nepal. In India, it has a
strong and extensive network of 1,888 Domino's stores across 397 cities. In
Sri Lanka and Bangladesh, the company operates through its 100% owned
subsidiary which currently has 50 and 23 stores respectively. The company also
has exclusive rights to develop and operate Popeyes restaurants in India,
Bangladesh, Nepal and Bhutan and Dunkin' restaurants in India. The company
currently operates 22 Popeyes restaurants in six cities and 21 Dunkin'
restaurants across seven cities.

In 2019, Jubilant FoodWorks Limited launched its first owned-restaurant brand
'Hong's Kitchen' in the Chinese cuisine segment which now has 18 restaurants
across three cities. All store counts referred to in this paragraph are as at
30 September 2023.

Important Notices

This announcement is for information purposes only and is not intended to and
does not constitute, or form part of, an 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 the Offer or otherwise, nor shall there be any sale,
issuance or transfer of securities of DP Eurasia in any jurisdiction in
contravention of applicable law.

The Offer is made solely by means of the Offer Document and, in respect of DP
Eurasia Shares held in registered form, any deed of transfer, which contain
the full terms of the Offer including details of how to accept the Offer.
Details on how to accept the Offer in respect of DP Eurasia Shares held as
Depositary Interests held in CREST is set out in full in the Offer Document.
Any approval, acceptance, decision or other response to the Offer should be
made only on the basis of the information in the Offer Document. DP Eurasia
Shareholders are strongly advised to read the formal documentation in relation
to the Offer.

Peel Hunt, which is authorised and regulated in the United Kingdom by the
Financial Conduct Authority, is acting exclusively for Jubilant Foodworks and
for no-one else in connection with the matters referred to in this
announcement and will not be responsible to any person other than Jubilant
Foodworks for providing the protections afforded to clients of Peel Hunt, nor
for providing advice in relation to the matters referred to herein. Neither
Peel Hunt nor any of its 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 Peel
Hunt in connection with the matters referred to in this announcement, or
otherwise.

Overseas Shareholders

This announcement has been prepared in accordance with English law and the
information disclosed may not be the same as that which would have been
disclosed in accordance with the laws and regulations of jurisdictions outside
England. The statements contained in this announcement are made as at the date
of this announcement, unless some other time is specified in relation to them,
and there shall be no implication that there has been no change in the facts
set forth in this announcement since such date.

The release, publication or distribution of this announcement and the
availability of the Offer in or into jurisdictions other than the United
Kingdom may be affected by the laws and regulations of those jurisdictions.
Persons who are not resident in the United Kingdom, or who are subject to the
laws of any jurisdiction other than the United Kingdom, should inform
themselves about, and observe any applicable requirements. Any person
(including, without limitation, nominees, trustees and custodians) who would,
or otherwise intends to, forward this announcement or any accompanying
document to any jurisdiction outside the United Kingdom should refrain from
doing so and seek appropriate professional advice before taking any action.
Any failure to comply with the applicable legal or regulatory requirements may
constitute a violation of the laws and/or regulations of any such
jurisdiction. To the fullest extent permitted by applicable law, the companies
and persons involved in the Offer disclaim any responsibility and liability
for the violation of such restrictions by any person.

Unless otherwise determined by Jubilant Foodworks, and permitted by applicable
law and regulation, the Offer is not being made, directly or indirectly, in or
into or by use of the mails or any other means or instrumentality (including,
without limitation, telephonic or electronic) of interstate or foreign
commerce of, or any facility of a national, state or other securities exchange
of, a Restricted Jurisdiction, and no person may accept the Offer by any such
use, means, instrumentality or facility or from within a Restricted
Jurisdiction. Accordingly, copies of this announcement and any related
documents are not being, and must not be, directly or indirectly, mailed or
otherwise forwarded or distributed in, into or from a Restricted Jurisdiction
and persons receiving this announcement or any related document (including
custodians, nominees and trustees) must not distribute or send them in, into
or from a Restricted Jurisdiction. Doing so may invalidate any purported
acceptance of the Offer.

Notice to US shareholders

The Offer will be made for securities of a public limited liability company
(naamloze vennootschap) incorporated under the laws of The Netherlands, with
its corporate seat in Amsterdam, The Netherlands and is being made in the
United States in compliance with all applicable laws and regulations,
including, to the extent applicable Section 14(e) of the US Securities
Exchange Act of 1934, as amended (the "US Exchange Act"), and Regulation 14E
thereunder (in each case, subject to any exemptions or relief therefrom, if
applicable) and otherwise in accordance with the disclosure and procedural
requirements of United Kingdom and Dutch law. US Shareholders should read the
entire Offer Document, which contains important information about the Offer
and the Shares. The Offer will be made in the United States by Jubilant
Foodworks and no one else. Shareholders in the United States are advised that
the Shares are not listed on a US securities exchange and that DP Eurasia is
not subject to the periodic reporting requirements of the US Exchange Act and
is not required to, and does not, file any reports with the US Securities and
Exchange Commission (the "SEC") thereunder. Neither the SEC nor any securities
commission of any state of the United States has approved the Offer, passed
upon the fairness of the Offer or passed upon the adequacy or accuracy of this
announcement. Any representation to the contrary is a criminal offence in the
United States.

In accordance with normal United Kingdom market practice and to the extent
permissible under applicable law or regulatory requirements, including Rule
14e-5 under the US Exchange Act, Jubilant Foodworks and its affiliates or its
brokers and its broker's affiliates (acting as agents for Jubilant Foodworks
or its affiliates, as applicable) may from time to time, both prior to the
making of the Offer and whilst the Offer, if and when made, remains open for
acceptances, make certain purchases of, or arrangements to purchase, DP
Eurasia Shares outside the United States otherwise than under the Offer, such
as in the open market or through privately negotiated purchases. Such
purchases, or arrangements to purchase, shall comply with applicable rules in
the United Kingdom and the rules of the London Stock Exchange. Details about
any such purchases will be available from any Regulatory Information Service,
including the regulatory news service on the London Stock Exchange website
(www.londonstockexchange.com).

The receipt of cash pursuant to the Offer by a US holder of DP Eurasia Shares
may be a taxable transaction for US federal income tax purposes and under
applicable US state and local, as well as foreign and other, tax laws. Each
holder of DP Eurasia Shares is urged to consult its independent professional
adviser immediately regarding the tax consequences of accepting the Offer.

Jubilant Foodworks Netherlands B.V. is a private company with limited
liability (besloten vennootschap met beperkte aansprakelijkheid) incorporated
under the laws of The Netherlands, with its corporate seat in Amsterdam, The
Netherlands. It is a wholly owned subsidiary of Jubilant FoodWorks Limited.
Some or all of the officers and directors of Jubilant Foodworks and DP
Eurasia, respectively, are residents of countries other than the United
States. In addition, most of the assets of Jubilant Foodworks and DP Eurasia
are located outside the United States. As a result, it may be difficult for US
shareholders of DP Eurasia to sue, or effect service of process within the
United States upon, Jubilant Foodworks, DP Eurasia, or their respective
officers or directors. Further, it may be difficult to compel a non-US entity
and its affiliates to subject themselves to a US court's judgment or to
enforce against them a judgment of a US court predicated upon the federal or
state securities laws of the United States.

Cautionary note regarding forward looking statements

This announcement contains certain statements which are, or may be deemed to
be, "forward-looking statements" which are prospective in nature. The words
"believe", "anticipate", "expect", "intend", "aim", "plan", "predict",
"continue", "assume", "positioned", "may", "will", "should", "shall", "risk"
and other similar expressions that are predictions of or indicate future
events and future trends identify forward-looking statements. These
forward-looking statements include all matters that are not current or
historical facts. By their nature, forward-looking statements involve risks
and uncertainties because such statements relate to events and depend on
circumstances that may or may not occur in the future. Forward-looking
statements are not indicative of future performance and Jubilant Foodworks' or
DP Eurasia's actual results of operations, financial condition and liquidity,
and the development of the industry in which Jubilant Foodworks or DP Eurasia
sources operates, may differ materially from those made in or suggested by the
forward-looking statements contained in this announcement. The cautionary
statements set out above should be considered in connection with any
subsequent written or oral forward-looking statements that Jubilant Foodworks,
or persons acting on its behalf, may issue.

No profit forecasts or estimates

Nothing in this announcement is intended or shall be deemed to be a forecast,
projection or estimate of the future financial performance of Jubilant
Foodworks or DP Eurasia and no statement in this announcement should be
interpreted to mean that earnings or earnings per share of Jubilant Foodworks
or DP Eurasia (where relevant) for the current or future financial years would
necessarily match or exceed the historical published earnings or earnings per
share for Jubilant Foodworks or DP Eurasia, as appropriate.

Publication on website

This announcement will be published on Jubilant Foodworks' website and will be
available at https://www.jubilantfoodworks.com/
(https://www.jubilantfoodworks.com/) as soon as practicable following the
publication of this announcement. The content of the website is not
incorporated into, and does not form part of, this announcement.

Market Abuse Regulation

The information contained within this announcement would have, prior to its
release, constituted inside information as stipulated under Article 7 of the
Market Abuse Regulation (EU) No.596/2014 as incorporated into UK domestic law
by virtue of the European Union (Withdrawal) Act 2018 (together, "UK MAR").
Upon the publication of this announcement via a regulatory information
service, this inside information will be considered to be in the public
domain. For the purposes of UK MAR, the person responsible for arranging for
the release of this information on behalf of Jubilant Foodworks is Siddharth
Anand, Head of Legal at Jubilant FoodWorks Limited.

 

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