Polygon Challenges EY's Recommendations to the CNMV in their Telepizza Takeover Valuation Report

LONDON, Oct. 17, 2019 /PRNewswire/ -- Polygon Global Partners LLP has commissioned RHO Finanzas, an independent financial services firm that is a specialist in judicial and arbitral proceedings, to prepare a valuation report on Telepizza Group, S.A. in light of the tender offer approved on 28 March 2019 of Telepizza shares by KKR Credit Advisors (US) LLC (through Tasty Bidco, S.L.U.) and Telepizza's subsequent delisting from the Madrid, Barcelona, Bilbao and Valencia Stock Exchanges.

The tender offer resulted in a mere 38.8% of acceptances of the shares to which the tender offer was addressed and was followed by a delisting in which Tasty Bidco held a percentage of the company's shares (56.3%) that Polygon has been advised was the lowest in any approved delisting in Spanish history. This is an unacceptable situation given that Telepizza's minority shareholders (regardless of whether they were retail investors or experienced institutional investors) were effectively deprived – by the holder of a bare majority of the company's shares – of the protections of having invested in a listed company, and at a price that RHO Finanzas' valuation report suggests was not equitable, as outlined below. Worse, as noted below, the sponsor of Tasty Bidco causing these events is the same group that sold its shares to public investors when it listed the company only three short years ago.

Polygon is the investment manager for the Polygon European Equity Opportunity Master Fund and certain client accounts which collectively had an interest in excess of 12.6% of the total share capital of Telepizza at the time of the tender offer.

KKR, through Tasty Bidco, submitted a valuation report to the Comisión Nacional del Mercado de Valores (CNMV) prepared by Ernst & Young Servicios Corporativos, S.L. (EY), which recommended a price per Telepizza share of €6.00 for purposes of the "precio equitativo" to be approved by the CNMV in connection with the tender offer and the delisting.

RHO Finanzas has issued a report which, in Polygon's view, correctly values Telepizza at a range between €8.13 and €8.78¹ per share for purposes of the Royal Decree 1066/2007, the relevant statute for the determination of the "precio equitativo".

The EY valuation report, in Polygon's view based on the RHO Finanzas valuation report, undervalued Telepizza's shares by 35%-45%, ultimately enabling KKR, through Tasty Bidco, to delist Telepizza's shares at a price that was not equitable to Telepizza's minority shareholders.

Polygon notes several important differences in the approach taken by RHO Finanzas versus EY:

• Telepizza's comparable companies: RHO Finanzas determined, in Polygon's view correctly, that the appropriate comparable companies to Telepizza were other companies in the pizza sector; EY, on the other hand, included an array of businesses with fast food and airport and rail station concessions that have little to do with the Telepizza business, in Polygon's opinion. Furthermore, the multiples then applied by EY to these supposed comparables appear to be lower than those published by reputable sources at the time (e.g., Bloomberg, Yahoo Finance).

• Comparable transactions: Similarly, RHO Finanzas limited to relevant comparable transactions those in the pizza sector; EY elected to include transactions involving the far broader restaurant and coffee shop sectors. Furthermore, EY included the sale by Yum! Brands, Inc. of its operations in Ecuador and Chile to Telepizza, which was a part of wider master franchise arrangements agreed between Telepizza and Yum! Brands, and thus not a stand-alone comparable transaction.

• Discounted cash flow approach: EY presented financial projections that Polygon believes are directly contradicted by public guidance provided by Telepizza management (in May of 2018) about capital expenditures (capex) falling to levels of "around €30 million" post 2021 – EY showed capex increasing to levels of €63 million by 2028. In turn, EY used a cost of capital of 8.4-8.8% versus RHO's reasoned estimate of 7.3%.

Finally, Polygon notes that KKR was one of the major shareholders at the time of Telepizza's initial public offering in 2016 that sold, as part of the initial public offering, at a price of €7.75 per share. Research reports produced by banks underwriting the IPO used a demonstrably different methodology than EY has now used in 2019, when KKR, through Tasty Bidco, was able to confront Telepizza shareholders with a choice of either selling their shares at a mere €6.00 per share or remain invested in a delisted company with no market in its shares.

¹ The range was established using (1) an EV/EBITDA Multiple Valuation, (2) a Comparable Transactions Valuation and (3) a Discounted Cash Flow Valuation.

For further information please contact:
LLYC
+34 91 563 77 22
Luis Guerricagoitia
[email protected]
Valvanera Lecha
[email protected]

SOURCE Polygon Global Partners LLP

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