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MTY Food Group growing beyond the food court with deal to buy Imvescor for $248M

Last Updated Dec 12, 2017 at 2:20 pm PDT

The corporate logo of MTY Food Group Inc. (TSX:MTY) is shown. THE CANADIAN PRESS/HO

MONTREAL – MTY Food Group Inc. is growing beyond the shopping mall food court with a $248-million stock-and-cash deal to buy Imvescor Restaurant Group Inc. and its full-service restaurant and grocery products businesses.

The friendly deal will bring together such MTY banners as Thai Express, Vanellis and Manchu Wok with Imvescor’s Baton Rouge, Pizza Delight and Scores restaurants to create a company with a portfolio of over 5,700 stores under 75 brands.

Under the deal, MTY (TSX:MTY) will pay $4.10 per share for Imvescor (TSX:IRG) with the cash portion of the deal totalling about $50 million and the rest in stock.

The companies said Tuesday the offer implies a 13.3 per cent premium to Imvescor’s 10-day volume weighted average before it disclosed it had received a non-binding expression of interest from an unidentified potential buyer on Oct. 26.

However, stock in both companies fell after the announcement.

MTY shares were down 4.71 per cent at $51.97 at the closing of markets Tuesday on the Toronto Stock Exchange, while Imvescor shares fell 2.63 per cent to $4.07.

Analyst Elizabeth Johnston of Laurentian Bank Securities said the deal is good for MTY, but undervalues Imvescor. She recently pegged a takeout of Imvescor’s shares at $4.25 to $4.65 per share.

“Imvescor’s brands have a strong growth profile, with positive same-store sales growth and outlook for net new store openings,” she wrote in a report.

Imvescor chairman Francois-Xavier Seigneur said joining forces with MTY creates opportunities for Imvescor shareholders from an offer he described as representing a “full and fair value.” The combined company is expected to generate about $2.9 billion in annual sales.

“This share exchange and cash deal provides our shareholders with…the opportunity to participate in the growth of a strong North American, Montreal-based company that will be better equipped to face the challenges that are in front of our industry,” he said in a conference call Tuesday.

The restaurant industry is facing a number of headwinds, including rising minimum wages in several provinces and growing competition for scarce consumer dollars.

MTY’s offer was submitted after Imvescor received an unsolicited bid from an unnamed group. The activity prompted Imvescor to contact several potential partners, but it didn’t proceed with a bidding process.

MTY chief financial officer Eric Lefebvre said the deal represents a “compelling value proposition.”

“Both sets of shareholders will become owners in a more diversified business with more brands in more corners of the market and in more locations,” he told analysts.

MTY said it will gain experience and reach from Imvescor’s full-service restaurants, retail food business and network in the Maritimes.

“MTY has expanded into that direction (but) I think there will be a substantial amount of potential for MTY to learn from the Imvescor’s in-house expertise to grow that side of the business,” added MTY chairman and CEO Stanley Ma.

Ma said he doesn’t foresee making too many changes given Imvescor efforts over the past few years to improve its operations.

“Right now they’re looking quite solid and we’re happy to continue that path and then we will make the necessary adjustments down the road if necessary.”

The deal requires approval by a two-third majority of votes by Imvescor shareholders in February, as well as regulatory approvals and other customary closing conditions. The deal is expected to close in March.

Imvescor shareholders, including directors and senior officers, representing roughly an 18 per cent stake in the company have entered into support and voting agreements to back the deal.