15th Dec 2015 18:56
LONDON (Alliance News) - Domino's Pizza Group PLC on Tuesday said it has formed a joint venture to acquire Joey's Pizza, the largest pizza delivery operator in Germany, for up to EUR79.0 million.
The London-listed pizza deliver company said the venture was formed with Domino's Pizza Enterprises to make the acquisition. Domino's Pizza Group will own one-third of the venture, while Domino's Pizza Enterprises will own the majority. The pair will initially invest a total of EUR58.0 million in the venture to part-fund its planned acquisitions and costs. The London-listed group's share of that investment is EUR19.0 million.
"This is a transformational deal for our German operations, creating the new market leading pizza delivery operator. Our strategic stake in the joint venture positions DPG to capitalise on the significant future growth potential of this profitable and scaleable business," Domino's Pizza Group Chief Executive David Wild said.
Domino's Pizza Group has the rights to own, operate and franchise Domino's Pizza stores in the UK, Ireland, Germany and Switzerland, while Domino's Pizza Enterprises holds the rights in Australia, New Zealand, France, Belgium the Netherlands, Monaco and Japan. The Domino's brand is owned by Domino's Pizza Inc, a listed US company.
The venture will initially pay EUR45.0 million for Joey's Pizza, which has 212 stores across Germany. Further payments depend on earn-out criteria being met. The acquisition will create a pizza delivery operator with about 227 stores in Germany.
Domino's Pizza Group said the deal will boost its earnings on an underlying basis in 2016. Joey's is expected to generate system sales of about EUR143.0 million and pro forma, underlying earnings before interest, tax, depreciation and amortisation of about EUR7.0 million in 2015 as a whole.
Domino's Pizza Group also reiterated its guidance from mid-October, when it said it had a "strong performance" in the third quarter and a "solid start" to the fourth quarter.
"The board remains comfortable with current market expectations for full year 2015 results in the UK, ROI and Swiss operations, with at least 55 stores being opened in the UK. Germany will become a discontinued operation," the group said.
The German JV has agreed to acquire the master franchise rights for the Domino's brand in Germany. Domino's Pizza Group will receive a fee of up to EUR25.0 million in exchange for the transfer of the master franchise agreement to the German joint venture. The fee is to be paid in six annual instalments, depending on the profitability of the venture.
The London-listed group will have representation on the board of the German venture and other minority protections.
Domino's Pizza Group currently operates 20 stores in Germany, and up to 15 of those will be transferred to the venture, with the remainder to be closed. In addition the commissary in Berlin and the head office in Dusseldorf will close, the group said.
Total closure costs will result in a GBP7.3 million charge, to be taken in the 2015 financial year. Domino's Pizza Group said there has been a "significant improvement" in the performance of its existing German operations in the current financial year, having made an underlying loss of GBP7.3 million in the year ended December 28, 2015. The group expects losses in Germany to amount to GBP3.5 million in the current year.
Domino's Pizza Group has a put option, enabling it to sell its stake in the German joint venture at any point after the end of 2019, while Domino's Pizza Enterprises has a call option enabling it to buy the London-listed group's stake which can be exercised following 2021.
"The consideration payable upon exercise of either the put option or the call option will be based on an enterprise value determined from the capitalisation of future adjusted underlying EBITDA at an agreed multiple of between 10 and 12 times," Domino's Pizza Group said.
The transaction is subject to regulatory and other customary approvals and is expected to complete in early 2016.
By Samuel Agini; [email protected]; @samuelagini
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