Response to Revised Offer from Jubilant Foodworks

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, France, the Netherlands, Japan, Germany, Luxembourg, Denmark, Cambodia, Taiwan, Malaysia and Singapore	18.7x	15.6x
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	[phone]
Buchanan (Financial Communications)
Richard Oldworth / Toto Berger / Verity Parker	[phone] [e-mail]
Liberum (Financial Adviser, Corporate Broker) Corporate Broking: Andrew Godber / Edward Thomas / Will King M&A: Tim Medak / Mark Harrison / Matt Hogg	[phone]

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.

 

END