HOMEGROWN fast-food giant Jollibee Foods Corp. (JFC) will be financing the $238-million acquisition of South Korean coffee chain Compose Coffee through a mix of debt and cash, of which 47 percent, or $111.8 million, will be borrowed.
"It's going to be 47 percent debt, which has been lined up," JFC Chief Financial Officer Richard Shin told a roundtable discussion last week, adding that the company will utilize excess cash for the remaining 53 percent portion of the purchase price.
"We chose this ratio for various reasons. It keeps our capital structure in play, and it allows us also to use some leverage, where the return of this investment will far exceed the cost of leverage."
Earlier this month, JFC announced that unit Jollibee Worldwide Pte. Ltd. was buying 70 percent of the leading Korean coffee chain for $238 million (about P14 billion) to expand its coffee and tea business.
JFC's majority-owned Titan Fund and South Korean private-equity firm Elevation will take the remaining 5 percent and 25 percent, respectively, taking the total transaction value to around $340 million (around KRW470 billion or P20 billion).
Shin said that they were expecting a relatively early return on invested capital. "You can see nice double-digit returns starting from full year one, and even the spread to our WAC (weighted average cost) rate will give it superior spread, especially from year three onwards."
The finance chief also said that the acquisition of Compose Coffee had been by Elevation.
"We actively looked for a deal in Korea, but the deal came to us. ... Elevation brought the deal to us, but also foreign investors into Korea, so we thought it was a win-win for all parties. So that's it. That's why we ended up there."
With the addition of Compose Coffee to JFC's brand portfolio, Shin said the company was not actively looking for private equity and would instead continue expanding its flagship chain, Jollibee, internationally.
"So, our focus will be actually enfranchising Jollibee outside of the Philippines. We never say no to any form of capital structure because you always have to be current, but we're not particularly targeting any private funding races at the moment," he said.
In the next five years, JFC will be staying in Korea to increase its market share in the country and expand its more than 2,600 stores to 4,000.
"We're very focused on Korea for at least the next five years. We'd like to take market share growth in Korea that will be a better return on shareholders in terms of breakeven ... because it's quite lucrative and quite profitable," Shin said.
JFC expects approval of the deal by the Korea Fair Trade Commission next month and anticipates closure of the whole transaction by mid- to end-August.
JFC stocks on Friday closed up P3 per share to P228 apiece.
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