Listed franchise manager Retail Food Group launches surprise bid for Oaks Hotels & Resorts

Retail Food Group, the listed retail franchise manager behind Brumby’s and Donut King, has made a surprise takeover bid for the debt-laden apartment-hotel company Oaks Hotels & Resorts Ltd.

The twist? The $94.7 million offer has been accepted by key Oaks directors, despite a key shareholder already claiming a majority stake in the target.

RFG – which has more than 1,100 franchise outlets, including Michel’s Patisserie and bb’s café – says while at first it seems to have little in common with its Queensland-based target, the “respective business models are closely aligned, attractively synergistic and provide a tangible opportunity to combine the relevant divisional strengths of both enterprises given their remarkable similarity.”

“The Oaks business is poised for reinvigoration and its amalgamation with RFG’s existing franchise system further diversifies RFG’s revenues and remains consistent with its broad focus on property, leasing, and management of third party stakeholder relationships and interests,” it says in a statement.

“Indeed RFG perceives an opportunity in the immediate term to capitalise on its franchising expertise for the benefit of the Oaks business model via the introduction of franchising relationships.”

RFG adds that it can help Oaks with attractive funding access. “RFG will leverage its strong banking relationships combined with strong equity support to obviate this shortcoming and underpin both organic and acquisitional growth,” it says.

RFG could not be contacted for further comment.

According to RFG and Oaks, comments by the Bangkok-based Minor that it has nabbed a 54% stake in Oaks are incorrect. Rather, Oaks believes that the majority shareholding is dependent on the securities regulator approving Minor’s purchase of a 34% stake being sold by PricewaterhouseCoopers. Without that stake, Minor has just under 20% of Oaks.

Oaks and RFG will formally ask the Australian Securities and Investments Commission to reject Minor’s application for relief. But beyond the technicalities, Oaks says Minor’s sweetened 52-cent-per-share offer still fails to “adequately reflect” the company’s value.

The RFG offer is a 5% premium to Minor’s offer. RFG has two options on the table: a cash payment of $2.60 plus one RFG share for every 10 Oaks shares, or 54.5 cents per share. Last month, Oaks noted a KPMG assessment of the company valuing it at between 68 and 79 cents.

Oaks chairman Doug Wong yesterday told SmartCompany that Oaks does not consider Minor’s comments that it has picked up the PwC parcel – which once belonged to Oaks founder and BRW Rich lister Brett Pointon – relevant until ASIC grants the suitor permission to buy that stake.

“The granting of this relief by ASIC is discretionary, and there is no assurance that the relief will be granted by ASIC,” Wong says.

“Until such time as the requisite ASIC relief is granted, the board of Oaks considers that is appropriate to continue to conduct itself on the basis that Minor… has a relevant interest in 19.96% of Oaks,” he added.

Wong and fellow directors Stephen Lonie and Mark Gray intend to sell their stake into the RFG bid. Oaks and RFG share two directors, John Cowley and Colin Archer, although Oaks stresses the pair were excluded from the takeover discussions.

“The Oaks Board has been actively canvassing alternative proposals since the unsolicited takeover bid by Minor International and the offer today from RFG certainly vindicates our actions,” it says.

The offer follows a tumultuous start to the year for Oaks, with Minor threatening legal action against the Oaks board earlier this month as a spat emerged over whether it had picked up a majority stake.

Minor chief operating officer Dillip Rajakarier last week expressed anger over an Oaks announcement flagging a 60-cent-per-share offer, saying if Oaks had an offer in the wings, it should have entered a trading halt. Rajakarier also flagged a board spill, promising Pointon would be appointed to a “very senior role” under Minor’s ownership.

RFG, which listed in mid-2006 after acquiring the world intellectual property rights to the Donut King system, had 1,150 outlets through Australia, New Zealand and China in March this year.

It bought 321 Brumby’s franchise systems in September 2007, and then 457 Michel’s Patisseries franchisees months later. It also owns the Queensland-based Big Dad’s Pies franchise system, and the Australasian rights to the Esquires Coffee Houses system.

Earlier this year, Oaks dumped Pointon as its chief executive after receivers were appointed to two of his private companies in January. The companies held a combined stake of 34% in Oaks.

Oaks shares peaked at $2.40 in late 2006, but have been weighed down by the global financial crisis, delays with some hotel openings, weaker-than-expected tourist numbers and financing difficulties.

An emergency meeting is scheduled for May 27, with Pointon seeking to be reinstated to the board of the company he founded.

Minor is no stranger to Australia, having picked up a 50% stake in the Coffee Club in 2007 in a $23 million deal.