CANADA- Leading QSR franchiser and burger giant A&W Food Service has revealed plans to consolidate operations with major corporate restructuring.
The company is pursuing the purchase of A&W Revenue Royalties Income Fund, the publicly traded fund that owns its trademarks and seek out an initial public offering.
A&W Foods has not yet revealed the timeline for this consolidation process.
However, Susan Senecal, the company’s CEO, revealed the consolidation process will require voting approval by shareholders, which will be mailed to individual holders and filed on Sedar in a management memo.
Voting should follow regulatory approval, which could take place from September.
The consolidation move is part of the company’s strategy to deal with its convoluted corporate structure.
Since trademarks and intellectual property are owned by the A&W Revenue Royalties Income Fund, investors earn revenues through royalty payments. According to A&W Food Service, 98% of all A&W Food Services’ franchised restaurants are in this royalty pool.
This divided corporate structure means the only option to invest in A&W Food Service is to buy into this royalty pool, which limits the franchiser’s capitalization ability.
This royalty pool acts more like bonds and less like stocks, units of ownership. The major disadvantage of such an arrangement is its susceptibility to changes in interest rates and inflation.
Prior to the proposed corporate restructuring, unitholders received monthly distributions of US$1.92 for every unit, which amounted to a 6.7% annual return.
The rapid rise in interest rates due to inflation meant bond yields significantly increased across the capital markets, which has derailed interest in buying units because investors have more options.
If the proposed changes are implemented, investors will own a stake on the entire business and not only exposed to royalty payments. They will be exposed to the company’s profits and losses.
Investors will also be exposed to larger profit margins from a large-scale franchiser, which has a high free cash flow conversion.
If the transaction is successful, the income fund unitholders will either dispose of their units by selling them to A&W Food Service, convert them to shares or a preferred mix of both.
The company has stressed the planned transaction will not affect operations.
Sign up to receive our email newsletters with the latest news updates and insights from Africa and the World HERE
