Pizza Pizza Limited expands into Western Canada with purchase of Pizza 73 and Pizza Pizza Royalty Income Fund to acquire additional royalty stream


    Ontario's "number one pizza" to add 48 restaurants with acquisition of
    major Alberta pizza company

    TORONTO, June 14 /CNW/ - Pizza Pizza Royalty Income Fund (the "Fund")
(TSX: PZA.un) and Pizza Pizza Limited ("Pizza Pizza") announced today that
Pizza Pizza has entered into a definitive agreement to acquire Flying Pizza 73
Inc. and its affiliated companies (together, "Pizza 73"). In connection with
this transaction, the Fund has entered into a definitive agreement to acquire
the trademarks and other intellectual property associated with Pizza 73
restaurant operations.
    The acquisition of Pizza 73, a leading quick service restaurant ("QSR")
pizza retailer, based in Edmonton, Alberta, allows Pizza Pizza, which is
marking its 40th year in the industry, to expand into Western Canada and
specifically the fast-growing Alberta market. Pizza Pizza, Ontario's "number
one pizza", operates 532 restaurant locations, predominantly in Ontario and
    The Fund and Pizza Pizza are acquiring Pizza 73 for a combined purchase
price of $70.25 million. The Fund, through Pizza Pizza Royalty Limited
Partnership (the "Partnership"), will acquire the trademarks and other
intellectual property of Pizza 73 for $54.04 million (the "Transaction") and
Pizza Pizza will acquire the operating business of Pizza 73 for
$16.21 million. An additional $3 million earnout will be paid to the Pizza 73
vendors by Pizza Pizza in July 2008, provided certain revenue and
profitability targets are met. Pizza Pizza will license the trademarks and
other intellectual property associated with Pizza 73 from the Fund for a 9%
royalty payment to the Fund on system sales generated by the Pizza 73
restaurants in the royalty pool. The Transaction is expected to be immediately
accretive to the Fund's distributable cash per unit. The Transaction between
the Fund and Pizza Pizza will be considered a related party transaction under
OSC Rule 61-501 ("61-501") and Autorité des marchés financiers Policy 27
("Q-27"). A special meeting of unitholders is expected to be held in late July
to approve the Transaction, which is subject to approval by a majority of
minority unitholders.
    "Pizza Pizza has been working on a Western Canadian expansion plan, as
announced at the time of the Fund's initial public offering in 2005," stated
Michael Overs, Chairman of Pizza Pizza. "This represents an ideal acquisition
for Pizza Pizza, as Pizza 73 has achieved impressive growth and is a market
leader in the Alberta QSR pizza sector, and the Pizza 73 brand is well
recognized throughout Alberta. We look forward to working with Pizza 73's
management and owner/operators to expand their restaurant network and continue
to grow system sales and the great Pizza 73 brand."
    "The trustees of the Fund believe the Transaction is beneficial to
unitholders. The Transaction will diversify the Fund's cash flow with the new
royalty stream to be generated by Pizza 73 and position the Fund for continued
growth. We fully support Pizza Pizza's initiatives to generate value for
unitholders," said Elizabeth Wright, Chair of the Fund.
    Guy Goodwin, President of Pizza 73 said, "We are excited with this
transaction as it will allow Pizza 73 to accelerate its growth plans. Pizza
Pizza's track record of success and industry knowledge will allow Pizza 73 to
enter new markets and increase offerings to our customers." Pizza 73 was
recently awarded the distinction of being named one of Canada's "50 Best
Managed" companies for 2006. Key members of the Pizza 73 management team,
including Mr. Goodwin, will be staying with Pizza 73 following the
    The Transaction has been unanimously approved by the Trustees of the Fund
(the "Trustees"), all of whom are independent of Pizza Pizza. Blair Franklin
Capital Partners Inc. has provided an opinion to the Trustees that the
consideration to be paid by the Fund for the trademarks and other intellectual
property of Pizza 73 and the financial terms of the Transaction are fair, from
a financial point of view, to the public unitholders of the Fund. LeCG Canada
Ltd. has provided a formal valuation to the Trustees which concluded that the
fair market value of the trademarks and other intellectual property to be
acquired by the Fund pursuant to the Transaction ranges from $59.0 million to
$62.0 million and that the 9% fixed royalty rate to be payable to the Fund on
Pizza 73 system sales is commercially reasonable in the circumstances.


    In connection with the Transaction, the Fund has entered into an
agreement with TD Securities Inc. to sell, on a bought deal basis, 2,600,000
subscription receipts priced at $9.15 per receipt, each representing the right
to receive one Unit of the Fund, for gross proceeds of $23.8 million. The
subscription receipt financing is scheduled to close on or about July 5, 2007.
In addition, the Partnership has entered into a fully committed credit
facility co-led by BMO Bank of Montreal and Toronto-Dominion Bank to finance
the remainder of the purchase price and re-finance existing indebtedness.
    Michael Overs, indirectly, and the Pizza 73 vendors have each also agreed
to buy approximately $3.5 million of units, for a total of approximately
$7.0 million, at $9.15 per unit from the Fund on closing of the acquisition.
    TD Securities Inc. is acting as financial advisor to the Fund and Pizza
    Deloitte & Touche Corporate Finance is acting as financial advisor to
Pizza 73.


    The Transaction provides the following benefits to unitholders:

    -   Immediately 4.0% accretive to the Fund's cash available for
        distribution per fully diluted unit on a pro forma basis for the 52
        weeks ended April 21, 2007.
    -   Pizza 73 has demonstrated strong same restaurant sales growth from
        2003 to the 52 weeks ended April 21, 2007. Same restaurant sales
        growth was 10.1% in 2003, 20.9% in 2004, 13.5% in 2005, 27.5% in 2006
        and 26.1% for the 52 weeks ended April 21, 2007. Management of Pizza
        Pizza expects same restaurant sales to continue growing, however not
        at the same rates experienced from 2004 to 2007.
    -   Increases the Fund's market capitalization and float, and is
        therefore expected to increase the Fund's liquidity.


    Founded in 1985, Pizza 73, with its recognizable phone numbers ending in
"7373", currently has 48 restaurants in its system. Pizza 73 operates in the
take-out and delivery pizza QSR segment, principally in the province of
Alberta. Pizza 73 currently has four locations outside of Alberta; three in
Saskatchewan and one in British Columbia. Systems sales through its
centralized call centre and together accounted for approximately
95% of Pizza 73's sales for the 52 weeks ended April 21, 2007. Pizza 73
restaurants are not franchised, but instead are owned and operated as
independent businesses. Each restaurant is a corporation equally owned by an
independent owner/operator and Pizza 73. Pizza 73 supports its independent
owner/operators with new restaurant openings, product development and supplier
arrangements and a centralized marketing program funded by contributions from
each restaurant equal to approximately 8% of annual sales. Trademarks and
other intellectual property used in the restaurant system are owned by
Pizza 73. The Pizza 73 business also includes two commissaries and a call
    For the 52 weeks ended April 21, 2007, Pizza 73 had system sales of
$65.0 million. For the years ended July 22, 2006 and July 23, 2005, Pizza 73
had system sales of $52.8 million and $40.8 million, respectively.


    Upon closing of the Transaction, 41 Pizza 73 restaurants will be added to
the royalty pool. For the 52 weeks ended April 21, 2007, these restaurants had
system sales of $62.4 million. Pizza 73 restaurants will be added to the
royalty pool on January 1 of each year for those restaurants opened before
September 1 of the previous year. As the number of Pizza 73 restaurants in the
royalty pool is adjusted, Pizza Pizza's interest in the Fund will also be
adjusted pursuant to a predetermined formula consistent with the current
formula for adjustments in the number of Pizza Pizza restaurants in the Pizza
Pizza royalty pool.


    The Fund is a limited purpose, open-ended trust established under the
laws of Ontario to indirectly acquire the trademarks and trade names used by
Pizza Pizza in its restaurants. The trademarks were licensed to Pizza Pizza in
July 2005 for 99 years, for which Pizza Pizza pays the Fund a royalty equal to
6% of the system sales of its Pizza Pizza restaurants in the royalty pool. As
of January 1, 2007, there were 531 Pizza Pizza restaurants in the royalty
    Since its initial public offering in 2005, the Fund has increased
distributions four times while maintaining a 5% same restaurant sales growth.
The last distribution increase was in January 2007 when monthly distributions
were increased from $0.071 per unit to $0.073 per unit.
    A key attribute of the Fund's structure is the fact that it is a
"top-line" fund. Royalty income of the Fund is based on top-line system sales
of the royalty pool restaurants and is not determined by the profitability of
either Pizza Pizza or the Pizza Pizza restaurants in the royalty pool. Given
this structure, the success of the Fund depends primarily on the ability of
Pizza Pizza to maintain and increase system sales of the royalty pool.


    Pizza Pizza Limited, a privately-held Canadian corporation, is one of
Canada's most successful operators in the quick service restaurant industry
and is celebrating its 40th anniversary this year. Founded in 1967, Pizza
Pizza is guided by a mission to provide the "best food, made especially for
you" and a focus on quality ingredients, customer service, community
contribution and continual innovation, especially in offering health-conscious
menu choices.


    Certain financial information contained in this news release, including
references to cash available for distribution, are not standard measures under
Generally Accepted Accounting Principles ("GAAP") in Canada and may not be
comparable to similar measures presented by other entities. These measures are
considered to be important measures used by the investment community to assess
the source and sustainability of the Fund's cash distributions and should be
used to supplement other performance measures prepared in accordance with GAAP
in Canada.


    Certain statements in this press release may constitute "forward-looking"
statements which involve known and unknown risks, uncertainties and other
factors which may cause actual results, performance or achievements of the
Fund to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. When
used in this press release, such statements use such words as "may," "will,"
"expect," "anticipate," "project," "believe," "plan" and other similar
terminology. The risks and uncertainties are detailed from time to time in
reports filed by the Fund with the securities regulatory authorities in all of
the provinces of Canada to which recipients of this press release are referred
for additional information concerning the Fund, its prospects and the risks
and uncertainties relating to the Fund and its prospects. New risk factors may
arise from time to time and it is not possible for management to predict all
of those risk factors or the extent to which any factor or combination of
factors may cause actual results, performance and achievements of the Fund to
be materially different from those contained in forward-looking statements.
Certain of risks and uncertainties that may arise in connection with the
acquisition of Pizza 73 include risks associated with (i) the closing of the
acquisition of the Pizza 73 business and the Transaction; (ii) the integration
of the Pizza 73 business by Pizza Pizza; (iii) liabilities that may be assumed
in respect of the business and limitations on recourse in respect thereof, and
(iv) operating risks associated with the operation of Pizza 73 business in its
principal markets.
    The forward-looking information contained in this press release is
current only as of the date of this press release. There should not be an
expectation that such information will in all circumstances be updated,
supplemented or revised whether as a result of new information, changing
circumstances, future events or otherwise.
    This news release shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of the securities
described herein in any jurisdiction in which such offer, solicitation or sale
would be unlawful prior to qualification or registration under applicable
securities laws of any such jurisdiction. The securities described herein have
not been, and will not be, registered under the United States Securities Act
of 1933 (the "Securities Act") and may not be offered or sold in the United
States except pursuant to an exemption from the registration requirements of
the Securities Act.

For further information:

For further information: Curt Feltner, Chief Financial Officer, Pizza
Pizza Limited, (416) 967-1010,; For media interviews or
more information: Daniel Torchia, Torchia Communications, (416) 341-9929 ext.
223 or (416) 275-2151,

Organization Profile


More on this organization


More on this organization

Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890