Domino´s Pizza lays out plans for German exit

Domino´s Pizza laid the groundwork for its eventual exit from the German market on Wednesday, in what one analyst described as an "honourable withdrawal from a difficult situation".

The London-listed pizza-delivery firm (DPG) announced it had created a joint-venture with DPE, the Sydney, Australia-listed Domino´s Pizza Enterprises (DPE) which would both take over its loss-making German operations while acquiring the #1 player in the euro area´s largest economy, Joey´s Pizza.

London-listed Domino´s would take home a one-third stake in the joint-venture and receive a fee of up to £18.2m payable in six annual installments, dependant on the German JV achieving various thresholds of profitability.

In parallel, the JV would splash out AUD$120m (£57.6m) on the purchase, which would boost Joey´s footprint in the German market to 1,870 establishments.

However, under the terms of the deal, DPG had an option to sell its stake after December 2019 while while DPE received a built-in option to buy-out its partner after December 2021.

So, if the new business did not live up to expectations DPG would exit in 2020, whereas if it progressed well then DPE would probably purchase its rival´s stake, Credit Suisse analyst Tim Ramskill pointed out.

Under the terms of the agreement, DPG would also receive a fee of up to €25m (£18.2m) from DPE which would be payable in six annual instalments, dependent upon the German JV achieving various levels of profitability.

The acquistion multiple was 11.3 times earnings before interest, taxes, depreciation and amortisation.

That was well below the estimated 2016 18.9 times EV/EBITDA that DPG was trading on, the same analyst added.

"It is unlikely the business will be close to optimised on that time horizon and when coupled with the 10-12x EBITDA multiple that will be paid, we see this deal structure as favouring DPE rather than DPG," Ramskill said in a research note entitled "An honourable withdrawal from Germany".

As of 14:22, shares of DPG were higher by 1.04% to reach 979.03p while those of DPE were 8.27% higher at $53.44AUD by the close of trading in Sydney.