- Estimated purchase price in the range of US$85M to US$95M,
including an upfront payment of US$40M at closing
- Closing expected to occur in August
2019
- Transaction expected to be immediately accretive to Dollarama's
earnings:
+CA$0.02-0.03 per share for remainder of Fiscal 2020; +CA$0.05-0.07
per share in Fiscal 2021
MONTREAL, July 2, 2019 /PRNewswire/ - Dollarama Inc.
(TSX: DOL) ("Dollarama" or the "Corporation") announced today that
it entered into a definitive stock purchase agreement to acquire a
50.1% interest in Latin American value retailer Dollarcity. The
purchase price is based on a five times multiple of Dollarcity's
EBITDA, minus net debt and subject to customary adjustments, and
will be settled in cash using available free cash flows.
"With this transaction, which is expected to be immediately
accretive to our earnings, Dollarama is establishing a compelling
second growth platform, in complement to our Canadian growth
strategy," said Neil Rossy,
President and Chief Executive Officer of Dollarama. "After six
years of due diligence review and on-the-ground experience in
Latin America, we believe that now
is the right time to exercise our option to acquire this interest,
and that Dollarcity is the right vehicle to capture the growth
potential we see in our chosen markets. We have full confidence in
our local partners, who will continue to lead the Dollarcity
business with our support."
"We are very excited to bring our relationship with Dollarama to
the next level, and together strive to achieve Dollarcity's
long-term growth objectives. We have leveraged Dollarama's
expertise to establish a successful value retail model in
El Salvador, Guatemala and Colombia, and we look forward to continuing to
grow our store network in these countries in the years ahead," said
Marco Baldocchi, Chief Executive
Officer of Dollarcity.
Dollarcity Growth Plan: 600 Stores by 2029
As at March 31, 2019, Dollarcity
operated a total of 180 stores, with 44 in El Salvador, 54 in Guatemala and 82 in Colombia. Dollarcity's growth plan to 2029 is
to reach a target of up to 600 stores within its three existing
countries of operation, with the majority of store growth to be
focused in Colombia.
Dollarcity's growth target for the calendar year 2019 is 40 to
50 net new stores. In the first quarter of 2019, Dollarcity had
already opened 11 net new stores.
Transaction Background and Purchase Price
In February 2013, Dollarama
entered into a commercial agreement to share its business expertise
and provide sourcing services to Dollarcity, through a wholly-owned
subsidiary, Dollarama International Inc. This agreement included
the option for Dollarama to acquire a 50.1% interest in Dollarcity
as of the beginning of the seventh year of the partnership. The
countries covered by the agreement are Colombia, Costa
Rica, Ecuador,
El Salvador, Guatemala,
Honduras, Nicaragua, Panama and Peru.
In 2016, the agreement was amended to postpone the opening of
the call option window from February 2019 to
February 2020, as well as the relevant reference financial
period for the purposes of the purchase price calculation, in order
to provide the parties with more time to test the value retail
concept in Colombia and to take into account the additional
investments required to be made by Dollarcity to enter this
market.
Dollarama and Dollarcity have now mutually agreed to accelerate
the call option while maintaining, for the purposes of purchase
price calculation, the formula agreed upon in 2013 and the
reference financial period agreed upon in the 2016 amendment.
The purchase price formula is a five times multiple of
Dollarcity's EBITDA for the 12-month period ending June 30, 2020, minus net debt and subject to
other customary adjustments, based on audited financial statements.
Dollarama will make an upfront payment of US$40 million upon transaction closing, and
settle the balance in the third quarter of Dollarama's fiscal
year 2021. The total purchase price is currently estimated at
between US$85 million and
US$95 million, based on financial
projections provided by Dollarcity management.
The transaction, which is subject to customary closing
conditions, is expected to close in August
2019. Dollarama will account for its investment in
Dollarcity based on the equity method.
Operational Structure and Governance
Dollarcity stockholders will be comprised of Dollarama, with
50.1% ownership, and the Dollarcity founding group, with 49.9%
ownership. As a result, certain strategic and operational decisions
will be subject to 100% stockholder approval. These include, but
are not limited to, decisions related to capital structure, nature
of the business, merger and acquisition activities, executive
officer appointments, approval of annual budget and business plan,
and entry into new countries.
The Dollarcity Board of Directors will be composed of five
directors, three Dollarama representatives and two representatives
of the Dollarcity founding group.
Stockholder Options
The Dollarcity founding group has ordinary course put rights
commencing in 2022, subject to transaction size thresholds,
required ownership thresholds and freeze periods, among other
conditions and restrictions. Event-driven put rights also exist for
a sale transaction, a Dollarama change of control or a designated
person event. The exercise of any put right triggers a fair
market valuation to establish the applicable share price.
Dollarama has no remaining call options but does have the
ability to postpone the exercise of the Dollarcity founding group
put rights in certain situations.
Conference Call Information
A conference call is scheduled at 8:30 am
(ET) to discuss today's announcement and will be followed by
a question period open exclusively to financial analysts. Analysts
are invited to dial-in to the conference call using the dial-in
number provided below. Media and members of the public are invited
to participate in the call in a listen‑only mode, using the live
audio webcast, available in the Investor Relations/Events section
of Dollarama's website and below:
- Webcast link: https://bell.media-server.com/mmc/p/2nxx7j6f
- Dial-in number: (514) 392-1478 or (866) 223-7781
- Webcast replay available online until July 1, 2020 by clicking HERE
A slide presentation will be displayed during the webcast and
will be made available for download in the Investor
Relations/Events section of Dollarama's website shortly following
the conference call.
Forward-Looking Statements
Certain statements in this press release about current and
future plans, expectations and intentions, results, levels of
activity, performance, goals or achievements or any other future
events or developments constitute forward-looking statements. The
words "may", "will", "would", "should", "could", "expects",
"plans", "intends", "trends", "indications", "anticipates",
"believes", "estimates", "predicts", "likely" or "potential" or the
negative or other variations of these words or other comparable
words or phrases, are intended to identify forward-looking
statements. Forward-looking statements include, without limitation,
statements relating to the following: (i) the financial
performance of Dollarcity, (ii) the accretive impact of the
Dollarcity transaction on the Corporation's earnings, (iii) the
estimated purchase price to be paid by the Corporation for a 50.1%
interest in Dollarcity, (iv) the operational integration of
Dollarcity, (v) the count and geographic distribution of
Dollarcity's new store openings, and (vi) growth opportunities
derived from the Dollarcity transaction.
Forward-looking statements are based on information currently
available to us and on estimates and assumptions made by us
regarding, among other things, general economic conditions and the
competitive environment within the retail industry in Canada and in Latin
America, in light of our experience and perception of
historical trends, current conditions and expected future
developments, as well as other factors that we believe are
appropriate and reasonable in the circumstances, but there can be
no assurance that such estimates and assumptions will prove to be
correct. Many factors could cause actual results, level of
activity, performance or achievements or future events or
developments to differ materially from those expressed or implied
by the forward-looking statements, including factors similar to
those discussed in greater detail in the "Risks and Uncertainties"
section of the Corporation's management's discussion and analysis
and in the "Risk Factors" section of the Corporation's annual
information form for the Corporation's fiscal year ended
February 3, 2019, both available on SEDAR at www.sedar.com,
including the following: future increases in operating costs,
future increases in merchandise costs, inability to sustain
assortment and replenishment of merchandise, increase in the cost
or a disruption in the flow of imported goods, failure to maintain
brand image and reputation, disruption of distribution
infrastructure, inventory shrinkage, inability to increase
warehouse and distribution centre capacity in a timely manner,
market acceptance of private brands, failure to protect trademarks
and other proprietary rights, foreign exchange rate fluctuations,
interest rate risk associated with variable rate indebtedness,
competition in the retail industry, general economic conditions,
departure of senior executives, failure to attract and retain
quality employees, disruption in information technology systems,
inability to protect systems against cyber attacks, unsuccessful
execution of the growth strategy, natural disasters, climate change
and geopolitical events, unexpected costs associated with current
insurance programs, product liability claims and product recalls,
litigation, regulatory and environmental compliance.
These factors are not intended to represent a complete list of
the factors that could affect the Corporation or Dollarcity;
however, they should be considered carefully. The purpose of the
forward-looking statements is to provide the reader with a
description of management's expectations regarding the
Corporation's and Dollarcity's financial performance and to assist
the reader in understanding certain key elements of the
Corporation's and Dollarcity's current objectives, strategic
priorities, expectations and plans and may not be appropriate for
other purposes. Readers should not place undue reliance on
forward-looking statements made herein. Furthermore, unless
otherwise stated, the forward-looking statements contained in this
press release are made as at the date of those statements and we
have no intention and undertake no obligation to update or revise
any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by
law.
The financial outlook for Dollarcity's calendar year 2019 and
the financial outlook for the Corporation's fiscal years ending
February 2, 2020 and January
31, 2021 referred to in this press release are forward‑looking
statements and are based on financial projections provided by
Dollarcity's management and are subject to the risks and
uncertainties identified above. The purpose of such financial
outlook is to provide an estimated purchase price range for the
Dollarcity transaction and an estimate of the accretive impact of
the Dollarcity transaction on the Corporation's earnings, and may
not be appropriate for other purposes.
All of the forward-looking statements contained in this press
release are expressly qualified by this cautionary statement.
About Dollarama
Dollarama is a recognized Canadian value retailer offering a
broad assortment of consumable products, general merchandise and
seasonal items both in-store and online. Our 1,236 locations across
Canada provide customers with
compelling value in convenient locations, including metropolitan
areas, mid-sized cities and small towns. Select consumable and
general merchandise products are also available by the full case
only through our online store at www.dollarama.com. Our quality
merchandise is sold at select, fixed price points up to
$4.00.
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SOURCE Dollarama Inc.