Prestige Holdings Limited, the local franchise holder of KFC, Pizza Hut and TGI Friday, yesterday announced that it had agreed to purchase 100 per cent of the Subway Restaurant business and related assets from Main Stream Foods Limited for the sum of $110 million. Prestige Holdings, which is a publicly listed company, said that it will finance the acquisition by accessing an unsecured loan of $65 million at 7.5 per cent from Victor E Mouttet Ltd, its parent company, and that it would receive an interest-free loan of $45 million from the seller of the Subway Restaurant business, Main Stream Foods Limited, to be repaid 18 months from close of the transaction.
This means that 41 per cent of the purchase price will come by way of the interest-free loan from Main Stream Foods Limited, which was established in October 1997 and currently owns and operates 40 Subway restaurants throughout Trinidad & Tobago. In a news release that was submitted to the T&T Stock Exchange, Prestige Holdings said: "The purchase consideration of $110 million will be financed by an unsecured loan of $65 million bearing a fixed interest rate of 7.5 per cent on the principal balance," from Victor E Mouttet Limited, the parent company of Prestige Holdings. Prestige will repay $5 million of the $65 million debt in each of the succeeding three years, according to the statement.
Victor E Mouttet's $65 million loan "is convertible to common shares at PHL's option, through a Right's Issue of up to $50 million. As soon as it is practicable, PHL will review the Group's combined capital structure, to determine the optimal debt to equity ratio, and take appropriate action on its capitalisation." Prestige Holdings said that the acquisition is estimated to provide an increase in earnings per share on a standalone basis, and improving as the restaurant holding company "implements synergies and takes advantage of the Subway Brand's continued growth and development in Trinidad & Tobago." It is estimated that the transaction would add approximately $170 million to the sales of Prestige Holdings, in the company's financial year 2012 while adding $12.7 million to its net after tax profit, before factoring in interest cost on the acquisition financing.
"These estimates do not include new store growth and synergies from PHL's existing operations of sixty-five (65) KFC, Pizza Hut and TGI Friday's restaurants in Trinidad & Tobago," according to the restaurant holding company. Meanwhile, Prestige Holdings chairman Joseph Esau issued another statement in which he said that the company was in discussions with three possible purchasers of its 50 per cent stake in a HFC joint venture in the Dominican Republic. "The carrying value of this investment is $29.5 million, and we expect a significant impairment of our investment; as a result the Board agreed that an appropriate provision will be made in PHL's financial statements for the year ending 30 November 2011" said Esau of the Dominican company which operates 12 KFC and two TGI Friday restaurants.