After announcing some major acquisitions over the last five weeks, it's time for Retail Food Group Limited (ASX: RFG) to cough up the cash.
The recently announced Share Purchase Plan (SPP), worth $15 million, will combine with an already-completed $40m share placement to fund RFG's purchase of the Gloria Jean's franchise.
Asides from the obvious inequity in retail shareholders only being offered $15 million worth of shares, the proposition looks like a good one and here's what you need to know:
- Shareholders can apply for up to $15,000 worth of shares in one of four parcel sizes; $2,500, $5,000, $10,000, or $15,000
- Shares are offered for $4.80 each, so each of the four parcels will receive 521, 1042, 2084, and 3125 shares respectively
- Only shareholders who owned shares on or before the 23 October 2014 are eligible
- The SPP closes on the 19 December 2014
- New shares will be allocated on 30 December and may trade from 31 December
- Dates are indicative only and may change at RFG's discretion
All in all, this one should be a fairly simple decision for shareholders.
The recent acquisitions make it look as though Retail Food Group may have finally achieved scale and competitive advantages in its coffee business which will be a big plus for that part of the company.
Time will tell how the price stacks up against the growth prospects of both coffee businesses, although price to earnings multiples of between 5 and 7 for Gloria Jean's and Di Bella appear quite reasonable.
Further the Australian café and coffee industries appears to be growing modestly each year which is another plus.
If you like what RFG's doing, you're being offered shares at a substantial discount to recent prices and it makes good financial sense to apply for your allocation.
Investors should expect a fairly high chance of scaled back allocations however since $4.80 is such an appealing discount to recent prices of $5.91.
Given that the around 3 million new shares to be issued in the SPP are roughly 2% of the shares on issue it's also possible that prices will drop in the short term thanks to profit taking. I don't believe they will drop as low as $4.80 though, and even if they did it looks to be a great price considering the boost to earnings RFG should get in the next few years.
