Covid-19 impact knocks R100 million from Burger King South Africa sale price

Food and gaming group, Grand Parade Investments (GPI) has renegotiated the selling price for the Burger King franchise in South Africa, knocking off R100 million from its initial valuation.

GPI said in a note to investors on Wednesday (29 July), that the sale of the business, and associated production facilities to ECP Africa Fund had to be renegotiated due to the impact of the Covid-19 pandemic on its operations.

The sale still entails the company selling its entire shareholding in Burger King South Africa, comprising 95.36% of the issued share capital, and all of the shares it holds in Grand Foods Meat Plant, comprising 100% of the issued share capital.

The deal will be subject to the same terms and conditions as set out in the initial announcement of the sale in May.

The Burger King SA enterprise has been revalued to R570 million, from R670 million before the renegotiation, while the meat plant now carries a revaluation of R23 million, down from  R27 million, before.

The move to sell Burger King is part of GPI’s plans to focus on operations that it believes could unlock value for shareholders.

“Over the last 2 years management has undergone a process of restructuring the business with the main aim of reducing the discount to iNAV (indicative net asset value). This process involved discontinuing loss making business and improving the profitability of its operational food and manufacturing businesses.

“The restructure resulted in a vast improvement in profitability which assisted in reducing the discount,” it said by way of rationale for the deal.

In March last year, GPI said that it would close its Dunkin Donuts and Baskin Robbins branches in South Africa which counted losses exceeding R70 million.

The group said that it tried to find interested parties to buy the brands, but noted that it received no serious offers in the allotted period, leading to the businesses being liquidated.

Restaurants in crisis

Burger King, like all other fast food outlets and restaurants in South Africa, took a significant knock to its business after being forced to shut down during lockdown.

All restaurants ceased trading on 27 March 2020. Restaurants could commence trading on a delivery-only basis from 1 May 2020, with collection service being permitted from 1 June 2020. Full sit-down service could be resumed on 29 June 2020.

Prior to the nationwide lockdown, Burger King reported a challenging operating environment, but talked up its successes and turn to profitability despite this.

At the start of May 2020, when restaurants were allowed to open for delivery only, due to the “poor financial viability of only offering a home delivery service”, only a limited number of Burger King outlets provided this type of service.

Read: The sale of Burger King South Africa is being renegotiated – because of the coronavirus