(RFG) Donut King ++ BB's Coffee

[Halebop]

The price offered for Brumby's is fairly rich but RFG would potentially gain synergy benefits by merging franchise administration with their own operations (The management offer vehicle does not gain any economy of scale / loss of duplication benefits without making further acquisitions). At this price though I suspect they are really banking on success in a new international market.

In retail nobody enjoys a barrier to entry beyond scale. The only differentiation possible is essentially style and branding. In the instance of franchise systems at least expansion is paid for by someone else, delivering faster than normally possible organic growth and high return on assets (albeit on lower absolute profits as gains are shared with the equity backers / franchise holders).

Disc: None

[tommy]

Hi all,

I personally think this is as high as RFG will go to buy Brumbies... don't want them to pay too much for the acquisition unless the benefits are going to be reflected in the bottom line in the near future.

Now the ball is in their (BBS) court. Interesting times!

_____________________
http://www.gcbulletin.com.au/article..._business.html

RFG ups bid for Brumby's

05May07

RETAIL Food Group has spiced up the takeover battle for Brumby's Bakeries by snaring a key stake in the retail chain.

The Southport-based owner of the Donut King franchise has paid $6.8 million for River Capital's 15.59 per cent holding in Brumby's.

RFG has forked out $3.40 a share for River Capital's two million shares, which is a 10c premium to the $3.30 a share being offered by a management buyout team headed by Brumby's managing director Michael Sherlock.

The share swoop has been accompanied by an off-market bid by RFG for the remaining shares in Brumby's which is listed on the Bendigo Stock Exchange.

RFG chief executive Tony Alford said the bid represented a 'higher and more attractive return' for Brumby's shareholders, many of whom are franchisees.

He said he was confident the bid, which values Brumby's at $47.4 million, would be embraced by the 'non-conflicted' members of the company's board.

The Sherlock-led buyout offer comprised a $2.87-a-share cash component and a special franked dividend of 30c a share plus a 13c franking credit, taking the total bid to $3.30 a share.

On a cash basis, the RFG bid is more than 7 per cent higher than the buyout offer.

RFG has maintained a dogged desire to add Brumby's to its business profile since launching its original bid of $2.685 a share in December.

At the time, RFG said it identified annual savings of about $1 million a year through synergies between Brumby's 316 franchised outlets and RFG's Donut King and bb's cafe businesses.

Brumby's posted a 21 per cent lift in net profit last financial year to $2.08 million.

"The RFG board holds the view that Brumby's bakeries remains an excellent complementary acquisition," said Mr Alford.

[tommy]

Excellent news

14 May 2007
Brumby’s Board unanimously recommends RFG’s Bid

Brumby’s Bakeries Holdings Limited (Brumby’s) has today announced that its Board of Directors has, in the absence of a superior offer, unanimously recommended Retail Food Group Limited’s (RFG) cash offer of $3.40 per share for all of the issued capital of Brumby’s.

RFG’s offer, announced on the 4th of May 2007, represents:
- An 88% premium to the Brumby’s closing share price of $1.80 on 15 December 2006, being the last trading date prior to the announcement of RFG’s earlier scheme of arrangement proposal (‘Scheme Proposal’);
- A 108% premium to the volume weighted average price of $1.63 in the three months prior to the announcement of RFG’s Scheme Proposal;
- A 111% premium to the volume weighted average price of $1.61 in the six months prior to the announcement of RFG’s Scheme Proposal; and
- A 7% premium to the cash consideration most recently offered under the scheme of arrangement proposed by BBS (2006) Pty Ltd.

RFG will make a separate offer by private agreement to acquire the Brumby’s options which are currently on issue. The offer under that agreement will be $3.40 less the exercise price of the relevant option and will be subject to various conditions, including the Brumby’s Board resolving to vary the terms of the Brumby’s options to permit the option holders to deal with them.

The Brumby’s Board’s recommendation followed advice from BBS (2006) Pty Ltd (a company backed by the syndicate of Brumby’s director Marcus Barlow, Brumby’s CEO and managing director Michael Sherlock and Brumby’s company secretary Steve Brown) that it or its associates:

1. do not intend to make a further offer, nor amend their current offer, to acquire the balance of Brumby’s shares not controlled by them;
2. have sold 420,000 Brumby’s shares (or 3.91% of the issued capital of Brumby’s) to RFG; and
3. intend to accept (in the absence of a superior offer) RFG’s offer for the remainder of their Brumby’s shares following commencement of the offer period under RFG’s impending Bidder’s Statement.

The transaction outlined at Item 1 above was entered into today, the 14th of May 2007, for a cash consideration of $1.428 million (being $3.40 per share).

Following the acquisition of these shares, RFG will control approximately 19.9% of the issued capital in Brumby’s.

Those Brumby’s directors not associated with BBS (2006) Pty Ltd have also indicated an intention on their part to accept RFG’s offer in relation to all of the Brumby’s shares they own or control.

Brumby’s Chairman Terry O’Dwyer said that “RFG’s offer provides the best option for shareholders to maximise the value of their investment in Brumby’s and is fully endorsed and recommended by the whole of the Brumby’s Board”.

Brumby’s Managing Director, and director of BBS (2006) Pty Ltd, Michael Sherlock said “we are pleased that recent events have now brought certainty not only for Brumby’s and its shareholders, but also our Brumby’s franchisees and master franchisees”.

“The fact that RFG have continued to pursue Brumby’s in the face of BBS’s earlier offers no doubt reflects the high regard it has for the Brumby’s business. I consider this to bode well for the future of Brumby’s and we therefore have no qualms in fully supporting RFG’s bid”, he said.

RFG CEO Tony Alford said that, “he too was pleased that today’s events have brought certainty to matters surrounding the future ownership of Brumby’s”.

“It is extremely satisfying that the Brumby’s Board and BBS syndicate have given their support to RFG’s offer. The BBS syndicate members’ interests in Brumby’s, particularly that of Mr Sherlock and Mr Brown, went beyond those of a mere financial nature. They have dedicated significant personal time and effort to the development of the Brumby’s brand over a number of years and it is therefore no small action that they have placed their full support behind RFG’s offer”, he said.

“Ultimately, the RFG Board has consistently maintained that Brumby’s Bakeries is an e

[tommy]

http://www.foodweek.com.au/main-feat...&articleId=141

The private equity-led owners of Michel’s Patisserie have indicated they might entertain approaches to sell all or part of the business.

The Australian Financial Review reports today that restructuring of the business since ANZ PE and executive director John Livy bought it in March last year had achieved significant improvements in operating performance. In an interview with the paper, Livy said Michel’s was “content to pursue growth independently, but would consider the right offer. “It would depend on the partner and what they might bring to the merger,” he told the paper.

It suggested Retail Food Group – currently in a hostile takeover bid for bakery chain Brumby’s – was interested in acquiring Michel’s, which has about 350 coffee and cake outlets trading in Australia and New Zealand.

But to acquire both businesses, RFG would need to raise significant funding.

Livy declined to comment to the AFR on whether RFG had approached the business.

“There are a number of people who have contacted us,” he said.

[tommy]

RFG seems ready to break out from current trading range, though trading volume is small (illiquid stock!) after the almost-in-da-bag takeover announcement of Brumby's.

http://bigcharts.marketwatch.com/int....x=36&draw.y=8

Still cheap IMHO[:I] Boring stock for traders though...

[trader-jim]

Anybody heard any rumours, price jumped and now none on the sell side. I know its lightly traded but maybe a ann about the buyout is due.

[tommy]

quote:Originally posted by trader-jim

Anybody heard any rumours, price jumped and now none on the sell side. I know its lightly traded but maybe a ann about the buyout is due.

Hi jim,

Not many stocks available to begin with so getting decent volume is hard without pushing price up with RFG... perhaps its just a delayed reaction to the recent announcement that the takeover of Brumbies is a "done deal"? In any case, I am not complaining... I still hold a bucket load of RFG and haven't sold a single share since picking them up $81c

[trader-jim]

Hi jim,

Not many stocks available to begin with so getting decent volume is hard without pushing price up with RFG... perhaps its just a delayed reaction to the recent announcement that the takeover of Brumbies is a "done deal"? In any case, I am not complaining... I still hold a bucket load of RFG and haven't sold a single share since picking them up $81c


[/quote]

Hi Tommy,

Still have all mine too from 84c. Also noticed that the market cap has now gone over 100m (by my calcs at 1.52)so if it can stay over that it may get some attention, especially since its already in the news

[tommy]

Target statement released:

http://sa.iguana2.com/cache/30b9e2a4...RFG-188397.pdf

[tommy]

RFG might have bottomed out but very thinly traded so difficult to judge...

http://bigcharts.marketwatch.com/int...w.x=0&draw.y=0

Over 1m in shares changed hands yesterday, wonder what that was all about. PE of 13 is still very cheap IMHO