KEY POINTS:
Vending technology company VTL Group has agreed to sell its US franchise business assets - but a complex deal could see the NZX-listed firm become the majority owner of the buyer.
VTL has agreed to sell vending franchise assets including interests in 24 seven Vending (US), Universal Vending
Management and Norcal, to Bacon Whitney for a subordinated note of US$67.5 million ($90.8 million.
The note will have a five-year maturity date and earn 10 per cent interest a year.
However, VTL chairman Gary Stevens said if the note was converted into Bacon Whitney shares, VTL would get a majority ownership of up to 72.2 per cent.
The choice of whether to convert the note or pay the cash belonged to Bacon Whitney and VTL was not expressing a preference at this stage, Stevens said.
"It's better for VTL to let Bacon Whitney get established and work its way through," he said.
Under the terms of the deal, VTL would also surrender its interests in Service America - in which it was about a 17 per cent shareholder - to a party designated by Bacon Whitney.
Service America was one of the largest independent vending companies in the US with about 37,000 machines on about 10,000 sites, either franchised of directly operated .
VTL had been expected to exercise its own option - now relinquished - to take majority control of Service America, boosting revenue to almost $300 million.
"Bear in mind that would have taken us five [or] six years to get to," Stevens said. VTL would grant Bacon Whitney a perpetual and exclusive licence to its 24 seven franchise system in North America.
However, VTL could still franchise its 24 seven operations outside North America, get ongoing revenue from supplying technology services to Bacon Whitney, retain ownership of Shop24 and the right to licence technology to non-franchise vending businesses in North America.
The deal becomes more complex because Bacon Whitney is a company set up by US-fund Halpern Denny, which is also a part owner of Service America.
Bacon Whitney would buy the franchise vending assets from Service America but not its direct vending business, Stevens said
If the US$67.5 million subordinate note given to VTL was converted into Bacon Whitney shares Halpern Denny would become as a minority stakeholder.
"So it's been agreed that they would then be able to convert their shares into VTL shares so they are not left in Bacon Whitney as minority shareholders," Stevens said.
VTL has agreed to grant Halpern Denny the right to exchange shares in Bacon Whitney for new VTL stock on a one for one basis.
Halpern Denny holds all 5.5 million shares in Bacon Whitney, while VTL currently has 36.7 million shares on issue.
A share transfer based on current stock could theoretically see VTL give Halpern Denny a 13 per cent stake in the company.
The complexity of the deal rises further when considering that John Halpern and George Denny III - founders of Boston-based investment firm Halpern, Denny & Co - each hold a personal interest in VTL of 9.95 per cent. Both want to raise their personal interests in VTL to 21.21 per cent, although this along with the complex sale agreement need shareholder approval.
Shareholders deemed interested parties on particular resolutions will not be entitled to vote, Stevens said
Shareholders are expected to receive an appraisal report and vote on the complex transaction later in the month. VTL's shares closed down 5c yesterday at 70c.
VTL Group
* Global vending machine franchisor.
* Operations includes technology and finance.
* Selling US assets for US$67.5 million.
* Retains rights outside North America.