"The secret is in the dough". In the nineties, Telepizza put this slogan in all Spanish homes. Now you could say that the secret of the fast food company is in the pasta. In other words, your future is a matter of money. Last December, the international KKR fund, the largest shareholder with 26% of Telepizza, accompanied by Juan Abelló and the March family, launched an OPA on the fast food company at six euros per share, which means that it would be valued at 604 million euros. It is true that this appraisal is much higher than the price at which the securities were quoted at that time (4.50 euros), but it is also true that the proposal is well below the 7.75 euros to which the KKR itself valued the company in its IPO in April 2016. In addition, the company has just closed an important alliance with Pizza Hut which, in theory, strengthens it. A pulse is looming for the price that could condition the result of an operation that is endorsed by Citibank and Banco Santander.
Three fund managers, Bestinver, Perpetual and Highclere International Investors, which account for around 10% of Telepizza's capital, have already expressed their dissatisfaction through a letter to the company's board of directors considering that the offer is too low . As indicated by Intermoney analyst Rafael Bonardell, the operation will be contested: "The takeover is conditioned on the acceptance of at least 90% of the shareholders. Considering that the three managers who disagree with the offered price control 10% of the capital and that other shareholders could join their position, it should not be ruled out that KKR will have to improve the price of the offer if it wants it to go ahead ".
Although Bonardell predicts battle, for him the company is well valued at six euros per share. "If we take into account the net debt of the first half of 2018 and its operating profit [ebitda], would be a sufficient price for a business with a high rivalry in the pizza sector (Domino's, Papa John's), to which must be added the competition of substitute products (McDonald's, Burger King) and online aggregators (Just East, Deliveroo, Uber Eats, Glovo …) ". To these obstacles, the Intermoney expert adds that the future for fast food is "uncertain given the changes in consumers' eating habits, in addition to having a significant weight of operations in Latin America." César Sánchez-Grande, director of analysis of Ahorro Corporación, also had valued Telepizza at six euros per share, so the offer would not squeak, although that price does not include the partnership with Pizza Hut. "With this agreement, which is positive for both parties, our price of six euros per share rises to seven euros," he says.
Criticisms of opportunism
Bestinver, which has just over 3% of Telepizza (the company has not wanted to make statements for this report), believes that the seven euros are the starting point to start talking. His analyst of the consumer sector, Jaime Vázquez, argues it this way: "After the good agreement signed between Telepizza and Pizza Hut that supposes a transformation of the company, that would happen to have an ebitda of 100 million euros in 2021, we are shocked that now make a takeover to six euros when the KKR itself took it out in 2016 to 7.75 euros with a much lower operating profit than the current one (65 million) and the one expected within two years ". He adds: "In our calculations, Telepizza's valuation moves between 6.50 and 10 euros. We should be around 8 or 9 euros per share and any offer should start at 7 euros. I think there has been a lot of opportunism in launching the offer in December, when the stock market was depressed, "concludes Vázquez.
In April 2018 Telepizza and Pizza Hut announced their alliance, although it was not made official until December, days before the KKR takeover. In addition to the goal of 100 million ebitda three years ahead, the agreement includes more things. Under the agreement, Telepizza becomes the largest franchised master (which manages the franchises) of Pizza Hut in the world by number of establishments. The agreement virtually doubles the Telepizza stores to more than 2,500, with a presence in 37 countries, and its sales up to 1,100 million euros per year. The alliance also includes the opening of 1,300 new establishments in the next 10 years by Telepizza in the regions covered by the agreement: Spain, Portugal, Latin America (except Brazil), the Caribbean and Switzerland.
But not all agree on the immediate benefits of the association. Bonardell stresses that in the short and medium term the operation is not good for Telepizza neither in quantitative nor qualitative terms. "However, for the long term, given the uncertainties that this sector presents, becoming the largest franchisee of Pizza Hut and going hand in hand with the largest pizza chain at home will allow the company to be better positioned to weather the storm ", Explain. More positive sees the operation César Sánchez-Grande, which considers it good for both parties. "Telepizza suffered from lack of growth in Spain and Europe. Now it becomes the Pizza Hut franchise master for all Latin America and its official supplier, and brings home sales. If KKR thought that the agreement was bad, it would not launch the offer, "he explains.
The alliance caused the departure of Marcos de Quinto's council, circumstance that has led the CNMV to open a sanctioning file. The reason was that Telepizza said that the ex-director of Coca-Cola's departure was due to personal reasons when in fact it responded to discrepancies on the agreement with the US giant. De Quinto was in favor of a Pizza Hut deal on Telepizza that, in his opinion, would benefit the shareholder and make everything easier.
Leopoldo Fernández-Pujals, Pedro Ballvé, José Carlos Olcese, the Permira fund, KKR and a long list of others have formed the shareholder of Telepizza that has lived a history of comings and goings on the Stock Exchange. If the current OPA of KKR finally triumphs, it will be its second exclusion from the Spanish market.
Telepizza went public for the first time in November 1996 at a price of 2,300 pesetas (13.8 euros) from the hand of its founder Leopoldo Fernandez-Pujals, which sold its share of almost 40% in 1999 for some 50,000 million pesetas (300 million euros). Enter Pedro Ballvé (Campofrío) and José Carlos Olcese and later the Permira fund. In 2006 they made an exclusion takeover bid at 3.21 euros per share. The KKR fund entered in 2014 and in April 2016 it launched Telepizza a Bolsa at 7.75 euros per share. Now, only three years later, Telepizza can abandon the stock price to six euros per title.