Brazil Fast Food Company, $BOBS, Taken Private Offer Voted Down By Shareholders

Brazil Fast Food Company, $BOBS, Taken Private Offer Voted Down By Shareholders

Thanks to Brian for the heads up this morning and sending me a link for the following news this morning as I was getting my daughter ready for her newborn appointment. Emphasis is mine.

 

RIO DE JANEIRO, Nov 20, 2013 (BUSINESS WIRE) — Brazil Fast Food Corp. (otc markets:BOBS) (the “Company”), the second largest fast-food restaurant chain in Brazil with 1,085 points of sale, today announced that the investor group (the “Investor Group”) has withdrawn its offer to acquire all outstanding shares of the Company not owned by the Investor Group. The offer was for US$15.50 per share in cash under a merger agreement with the Company. That merger agreement was terminated by the Investor Group this morning following a Company stockholder meeting at which an insufficient number of stockholders voted in favor of the proposal.

In its termination letter to the Company, the Investor Group stated, “We continue to believe that the $15.50 price recommended by the special committee of the board of directors was a fair price, as the independent directors and their financial advisor had determined. In our view, that price became even more attractive since the merger agreement was signed on September 27 because, among other reasons, the Brazilian Real has further depreciated since that time. The unaffiliated stockholders, however, have determined to remain invested in the Company which we take as a vote of confidence in the Company’s prospects even in light of the increasingly challenging Brazilian market conditions.”

No breakup fee is to be paid in connection with the termination of the proposal.

About Brazil Fast Food Corp.

Brazil Fast Food Corp., through its holding company in Brazil, BFFC do Brasil Participacoes Ltda. (“BFFC do Brasil”, formerly 22N Participacoes Ltda.), and its subsidiaries, manage one of the largest food service groups in Brazil and franchise units in Angola and Chile. Operating under (i) the Bob’s brand, (ii) the Yoggi brand, (iii) KFC and Pizza Hut Sao Paulo, as franchisee of Yum! Brands Brazil, and (iv) Doggis, as master franchisee of Gastronomia & Negocios S.A. (former Grupo de Empresas Doggis S.A.), our subsidiaries are Venbo Comercio de Alimentos Ltda. (“Venbo”), LM Comercio de Alimentos Ltda. (“LM”), PCN Comercio de Alimentos Ltda. (“PCN”), CFK Comercio de Alimentos Ltda. (“CFK”, former Clematis Industria e Comercio de Alimentos e Participacoes Ltda.), CFK Sao Paulo Comercio de Alimentos Ltda. (“CFK SP”), MPSC Comercio de Alimentos Ltda. (“MPSC”), FCK Comercio de Alimentos Ltda. (“FCK”, former Suprilog Logistica Ltda.), DGS Comercio de Alimentos Ltda. (“DGS”), Yoggi do Brasil Ltda. (“Yoggi”), Schott Comercio de Alimentos Ltda. (“Schott”), Little Boss Comercio de Alimentos Ltda. (“Little Boss”), CLFL Comercio de Alimentos Ltda. (“CLFL”) and Internacional Restaurantes do Brasil S.A. (“IRB”). IRB has 40% of its capital held by Mascali Participacoes Ltda., another Brazilian limited liability company, whose main partner is the CEO of IRB.

Safe Harbor Statement

This press release contains forward-looking statements within the meanings of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known or unknown risks, uncertainties and other factors that may cause the actual results to differ materially from those expressed or implied by such forward looking statements. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see the disclosures in the Company’s financial reports, including the risk factors contained in the Company’s most recent annual report and quarterly reports available on its website www.bffc.com.br.

SOURCE: Brazil Fast Food Corp.

Great news of course for all BOBS shareholders as that offer of $15.50 a share was ridiculously low as was outlined many places and talked about on this blog here and here.

Thank you to everyone who voted no to the offer and everyone who I have been in contact with over the last several weeks as this offer was considered.  Thanks to all of you concerned shareholders we were able to vote down the offer and keep a hold of this massively undervalued and growing company for at least a little while longer.

I was asked this morning if I think the BOBS insiders would seek any kind of “revenge” against minority shareholders in the near future.  I do think that with this no vote does come some downside for us remaining shareholders.  Being a bit of a cynic, especially after something like this has happened, I do think that the next several quarters earnings and growth will be lower than they have been in recent quarters.  Possibly artificially lower due to management wanting to get the companies price lower so they can attempt another buy out at a lower price, or because of the real problems that are going on in Brazil, even if management in my estimation overstated some of the concerns going on there.  I also expect that if the insiders do attempt to take the company private again that they are not likely to give minority shareholders the same benefit of “Outside” shareholders having the only votes on the matter like they did this time.

In any case I plan to hold onto my BOBS shares for the time being and if I am right and the share price drops for any issues, real or manufactured, everything remaining the same I will just buy more shares of the company.

Congratulations and thank you to everyone, but I am preparing for a bit of a bumpy ride at least in the short-term as a BOBS shareholder.

Quick Update About The Brazil Fast Food Going Private Offer

I have been in contact with several other BOBS investors thus far. Not including some people who have at this point not wanted to disclose how many of its shares they own, the people I have been in contact with own around $10 million in total worth of BOBS shares at the $15.50 offer price.  At this point nothing is concrete as far as I know but I will keep you all in the loop about the plans to push for a better offer if and when we get to that point.

Again, if you are a BOBS shareholder I would love to hear from you and maybe if we get enough capital together we can push for a much higher and more realistic offer price for the company.

For why I think the going private offer is ridiculously low, please read my post here.

Brazil Fast Food Company Insiders Ridiculous Offer To Take The Company Private

Brazil Fast Food Company Insiders Ridiculous Offer To Take The Company Private

I woke up to this news this morning, emphasis is mine:

Brazil Fast Food Corp. Proposes to be Acquired

RIO DE JANEIRO–(BUSINESS WIRE)– Brazil Fast Food Corp. (OTC Markets:BOBS) (the “Company”), the second largest fast-food restaurant chain in Brazil with 1,057 points of sale, today announced its entry into a definitive merger agreement pursuant to which Ricardo Figueiredo Bomeny, its CEO, and certain other shareholders (collectively, the “Investor Group”) representing approximately 74% of the Company’s outstanding shares, propose to acquire all outstanding shares of the Company at a price of US$15.50 in cash per share, or a total equity value of approximately US$32,556,045.

Under the terms of the merger agreement, Company stockholders would receive US$15.50 in cash for each outstanding share of Company common stock they own.

The merger, which is expected to close during the fourth quarter of 2013, requires the approval of the majority of the non-controlling stockholders who vote on the merger agreement. The transaction is not contingent on any financing.

The transaction is subject to other customary conditions, in addition to the stockholder approval described above. If the Company terminates the merger agreement because the Company’s Board of Directors authorizes entering into an Alternative Acquisition Agreement (as defined in the merger agreement), or if the Investor Group terminates the merger agreement because the Company’s Board of Directors changes its recommendation of the Investor Group’s offer, the Company must pay the Investor Group a US$1 million termination fee.

The Company’s Board of Directors acting on the recommendation of a Special Committee of independent directors unanimously approved a merger agreement under which the Investor Group would acquire the Company and take it private subject to a number of conditions, including a vote of the unaffiliated stockholders.

The Special Committee retained independent financial advisor Duff & Phelps and legal advisor Baker & McKenzie to advise it. The Investor Group retained financial advisor A:10 Investimentos and legal advisor Linklaters LLP to advise it.

Gustavo Alberto Villela Filho, who was a member of the Special Committee, said, “The Special Committee and its advisors conducted a disciplined and independent process intended to ensure the best outcome for shareholders.”

Ricardo Bomeny, CEO of the Company and part of the Investor Group, said, “I believe this transaction offers an exciting opportunity for Brazil Fast Food Corp. and its shareholders by delivering immediate value to those shareholders while allowing us to focus on long-term strategy and goals as a private company.”

In connection with the transaction, the Company will send to its stockholders a proxy statement and other documents, including a form of proxy card. The proxy statement and a form of proxy will be mailed to the Company’s stockholders. Stockholders are urged to read the proxy statement and any other documents sent to them carefully because they will contain important information about the transaction. Stockholders will be able to obtain a free copy of the proxy statement at the Company’s website of www.bffc.com.br, and upon request to the Company.

 

As Red from The Red Corner Blog said on Twitter:


If you are an owner of BOBS or follow the company at all you will know that this is a below market offer.  The company opened trading at $16.50 per share this morning so their offer is a 7% discount to what the market thought the company was worth and well below what I and others think the company is worth.

It does seem that a majority of the non-controlling shareholders have to approve this deal which is good if that really means what it seems like.  However, I have not been able to find clarification on what exactly that means but hopefully it means all outside investors.

I have not been able to find any significant fund or institutional ownership of BOBS on sites like Morningstar, but I am talking with several other “outside” investors, (Including a couple that own substantial portions of the outsider shares) on potentially collaborating to push for a higher offer.  If you are a BOBS shareholder and would like to collaborate please contact me through my contact page.

In my first article on BOBS which can be viewed here, I explained why I thought it was worth between $16 and $22 a share in December WITHOUT discounting its massive NOL’s at all.  In my second BOBS article, which can be viewed in total here by SA Pro members, I showed why I think the company is CONSERVATIVELY worth $20-$25 a share, this time discounting its NOL’s by 50%.  If you are not an SA Pro member I will repost just the valuation here.

Numbers are in millions of Brazilian Real, except per share information, unless otherwise noted.  The numbers I have bolded are what I am going to talk about here.

EBIT and net cash valuation

Cash, cash equivalents and short-term investments are 38.61.

Total current liabilities are 51.50.

Number of shares are 8.13.

Cash and cash equivalents + short-term investments – total current liabilities = 38.61-51.50 = -12.89/8.13 = R$-1.59 per share = -$0.71 in net cash per share.

BOBS has a trailing twelve-month EBIT of 33.58.

5X, 8X, 11X, and 14X EBIT + cash and cash equivalents + short-term investments: Using CURRENT exchange rate of $1 USD to R$0.45 and not the exchange rate from an original article.

  • 5X33.58 = 167.9+38.61 = 206.51/8.13 = R$25.40 per share which equals $11.42 per share.
  • 8X33.58 = 268.64+38.61 = 307.25/8.13 = R$37.79 per share which equals $16.99 per share.
  • 11X33.58 = 369.38+38.61 = 407.99/8.13 = R$50.18 per share which equals $22.56 per share.
  • 14X33.58 = 470.12+38.61 = 508.73/8.13 = R$62.57 per share which equals $28.31 per share.

Plus NOL’s: R$37.3 from income tax and R$68.7 from social contribution tax which is a total of R$106, or $47.65, which equals a total of $5.86 per share. I’m discounting this amount by 50% due to my conservatism and because of how long some of these will take to realize which brings the per share total down to $2.93.

  • 5X EBIT + cash and cash equivalents estimate of $11.42 per share + $2.93 per share = $14.35 per share.
  • 8X EBIT + cash and cash equivalents estimate of $16.99 per share + $2.93 per share = $19.92 per share.
  • 11X EBIT + cash and cash equivalents estimate of $22.56 per share + $2.93 per share = $25.49 per share.
  • 14X EBIT + cash and cash equivalents estimate of $28.31 per share + $2.93 per share = $31.24 per share.

Relative Valuations

TEV = Market cap + all debt equivalents (Including the capitalized value of operating leases, unfunded pension liability, etc) – cash – long-term investments – net deferred tax assets.

  • TEV = 117.1+147.67-38.61-18.51 = R$207.65 = $93.44
  • TEV/EBIT = 6.18
  • EV/EBIT = 3.23
  • EBIT/TEV (Earnings Yield) = 16.17%

If you compare the first article to the second one you will notice that its profitability has continued to improve in the ensuing months.  This has helped increase the overall value of the company and has kept them massively undervalued as their TEV/EBIT and EV/EBIT are about what they were in December when they were selling at $8 a share.  Their earnings yield has actually improved in that time.

In the second article I discounted the NOL’s by 50% due to my conservatism, and the company is still worth at 8X and 11X EBIT $20-$25 a share which is what I think is its intrinsic value range at MINIMUM today.  That valuation completely discounts 50% of its substantial NOL’s and does not count any future growth potential at all which is substantial.  If the company were to stay on its current trajectory and with the upcoming 2014 World Cup and 2016 Olympics both in Brazil, I think the company could AT LEAST be worth $30-$50 a share in a few years time.

Suffice it to say I think that the current offer is absolutely ludicrous by the insiders of BOBS who appear to be trying to steal the company from its outside shareholders and think that we should hold out and push for a much higher offer and I urge all BOBS shareholders to vote no to this ridiculously low ball offer.

I Got Interviewed About Core Molding Technologies By MergerMarket; A Part Of The Financial Times Network

Mergermarket Mark.jpg                            Visit mergermarket.com

I Got Interviewed About Core Molding Technologies By MergerMarket; A Part Of The Financial Times Network

Directly below is the link to the article where I got interviewed about Core Molding Technologies by MergerMarket; a part of The Financial Times network. The original PDF can be viewed in the following link.  Interviewed By MergerMarket About Core Molding_09.23.13

Tying Up Loose Ends Part 2: Site Updates, Portfolio Update, and Updates On Companies I Own

Tying Up Loose Ends Part 2: Site Updates, Portfolio Update, and Updates On Companies I Own

I have updated the site for the first time in months and today it is the portfolios turn. Over the weekend I updated the Translation Page/Traducción de página/صفحة ترجمة/翻译页面/Übersetzung Seite/翻訳ページ/번역 페이지, and the Recommended Value Investment Reading and Viewing with updated information and sites.  I also combined, and then deleted, the Helpful Links page with the Recommended Value Investment Reading and Viewing page because a lot of the information was redundant.

For the time being the portfolio below is based on the portfolios that I manage.  Earlier this year I liquidated my personal account to fund the start-up of me and my brothers business, pay off some bills, go on a trip for the first time in 10 years, and save money for me and my wife’s baby that is due in late October.  I am going to start building the funds in my personal portfolio back up again as soon as possible

092313_0142_1.png

Cash – Approximately 40% of portfolio.

Calloway Nursery, CLWY – Approximately 19% of portfolio.  I have a sell order pending for this company now due to it rising close to my estimate of its intrinsic value so the above chart could change if my sell orders are filled.  Up 90% as of today since I bought them in March.

Brazil Fast Food Company, BOBS – Approximately 14% of portfolio. First article I wrote about them can be viewed here, second article can be viewed here.  As of today up 109% since buying them in December.

Vivendi, VIVHY – Approximately 11% of porftolio. First article I wrote about them can be viewed here.  As of today up 32% since buying into them in June of 2012.  The following two links are recent updates about the company and its plans.  Vivendi is still thinking about splitting the company further after the sale of Activision Blizzard goes through.  The sale of Activision Blizzard has been put on hold by court in Delaware.

Paradise Inc, PARF – Approximately 10% of portfolio.  First article I wrote about them can be viewed here, second article can be viewed here.  As of today the position is about even since buying in March.

Core Molding Technologies, CMT – Approximately 5% of portfolio. First article I wrote about them can be viewed here.  As of today up 27% since buying into them in August of 2012.  The company has won multiple awards in recent months for being an excellent supplier and has also added significant additional business with Volvo.

As you can see from the portfolio above I have made some changes in the portfolio since my last update adding Calloway Nursery and selling Strattec and Main Street Capital.  I sold Strattec up nearly 75% since buying into them in December because they rose very fast to the high-end of my estimated value for them.  Will possibly buy back into them again if their price falls because I still think they are an excellent company.  I sold Main Street Capital up 65% due to the liquidation of my personal portfolio, which is the only place I held it, due to the reasons listed above.