MISSISSAUGA, ON, May 1 /CNW/ - Second Cup Royalty Income Fund (the "Fund") (TSX: SCU.UN) announced today that its wholly-owned subsidiary has entered into an agreement to acquire all of the outstanding shares of The Second Cup Ltd. ("Second Cup") for nominal consideration effective June 27, 2009. Following closing of the acquisition, Second Cup and its management team will continue to operate the Second Cup business as a wholly-owned subsidiary of the Fund, recombining the business of the Fund with the business of Second Cup. Second Cup is the operating company that carries on the business of franchising Second Cup cafes and operating company-owned cafes in Canada. Second Cup currently makes royalty payments to a subsidiary of the Fund pursuant to a license and royalty agreement. As a result of the recombination, unitholders will own both the royalty and operating branches of the business. The Fund also announced that the annual general meeting has been rescheduled and will take place on June 8, 2009.
The acquisition is the result of a review of the structure of the Fund and the Second Cup business, undertaken by the Fund and The Second Cup Coffee Company Inc., the current owner of Second Cup. In connection with its review, the Fund received financial advice from TD Securities Inc., the Fund's exclusive financial advisor. Based on its review and such financial advice, the Board of Trustees of the Fund determined that it was in the best interests of unitholders to recombine the business of Second Cup with the Fund for a number of reasons, including:
- the recombination simplifies the relationship between the Fund and
Second Cup and provides unitholders with direct oversight over the
operation of the Second Cup business through the Fund's Board of
Trustees;
- the recombination will enable unitholders to enjoy the full upside in
the business attributable to operational improvements, new cafe
openings, exciting new business opportunities and the eventual
strengthening of the Canadian economy;
- the recombination will not impact the Fund's intention to pay
distributions at an annual rate of $0.92 as announced on April 20,
2009;
- the recombination will mean that unitholders will in the future
receive the full benefit of net new cafe openings as there will no
longer be a "vend-in" mechanism; and
- the Fund will take on no additional bank debt as a result of the
recombination and will have a strong pro forma balance sheet to
support the future growth of the business.
Commenting on the recombination, David Bloom, Chairman of the Board of Trustees of the Fund, stated "the recombination allows unitholders to capture the benefit of the long term prospects of Second Cup. Notwithstanding the Fund's current top line royalty structure, unitholders are exposed to the risk of operating shortfalls at Second Cup in difficult business environments, as experienced in 2008 and as expected for 2009. On a going forward basis, distributions to unitholders and the value of the Fund's units will be based upon the performance of the Second Cup business as a whole. My fellow trustees and I are confident in the experienced management team under the leadership of Stacey Mowbray, President, and its focus on strengthening the Second Cup trademark by delivering superior customer satisfaction, by launching exciting new initiatives and programs to enhance customer loyalty and by profitably growing the cafe network."
Closing of the acquisition is subject to receipt of the consent of the Fund's lender as well as certain other conditions contained in the purchase agreement.
The Fund is an open-ended trust established under the laws of the Province of Ontario. It holds, through an indirect wholly-owned limited partnership, the Canadian trade-marks and other intellectual property and associated rights used by Second Cup in connection with the operation of Second Cup cafes in Canada. For more information on the Second Cup Royalty Income Fund please visit www.secondcupincomefund.com.
Second Cup is Canada's largest specialty coffee cafe franchisor and second largest retailer of specialty coffee, as measured by number of cafes. For further information on Second Cup, visit www.secondcup.com.
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