Shares in Majestic Wine (WINE:AIM) jumped 1% to 262p on news that its physical stores had been sold to private equity group Fortress for £95m.
A separate sale of one freehold property will realise a further £5m subject to it receiving planning approval for the redevelopment of the site.
If the sale is voted through the transaction will represent a coup for Naked Wine boss Rowan Gormley, whose business was purchased by Majestic Wine for £70m in April 2015.
Gormley set up Naked Wines in December 2008 after leaving Virgin Wines, which was subsequently purchased by Laithwaites.
DOES THE DEAL STACK UP FOR SHAREHOLDERS?
In March when the company first announced the plan to divest the retail shops, it was reported that both activist investor Elliott Advisors and Comet owner OpCapita were in the running to buy the 200 Majestic stores.
It is therefore perhaps surprising that the sale to Fortress involves a complex ‘deferred’ payment element, suggesting that the buyer was calling all the shots.
READ MORE ABOUT MAJESTIC WINE HERE
Fortress will pay an initial cash consideration of £78m and an additional £5m in cash will be deferred for two years and is contingent on the ‘post-Brexit regulatory landscape’ and the performance of the French commercial operations.
In addition, a further £12m of the purchase will be retained by Fortress in the form of an unsecured loan which will be repaid no later than five years after the disposal.
The loan note will pay 3% per year for the first three years, 4% in year four and 5% in year five. The terms of the loan will limit the amount of distributions that can be made, unless a base level of cash flow is maintained.
EXIT METRIC
The Majestic physical stores had a net asset value of £81m, revenues of £311.8m and £13.8m of operating earnings.
The implied exit multiple of 0.3 times revenues and 6.9 times operating profit represents a discount to the valuation of the group and shareholders may question the value they are getting, which is not helped by the fact that a large chunk of the proceeds are deferred.
In an attempt to ‘sweeten’ the deal for shareholders, the company will return £3.8m by way of a special dividend, amounting to 5.2p.
One activist shareholder, Gatemore Capital Management which has a 3.8% holding is thought to be supportive of the deal, believing that it is not beneficial for both the physical stores and Naked to operate under the same roof.
The net proceeds will be approximately £74m and will be spent on eliminating net debt, thought to be £30m when the deal completes.
The rest will be spent on ‘exploring a number of initiatives which have the potential to increase the rate of investment and growth’.
