A special ZA Confidential Investigation has uncovered allegations of insider trading around the arrival of one of the globe’s premier food brands in South Africa.
A complaint against Taste Holdings, which last year won the franchise for Domino’s pizza in South Africa, was lodged this week with the Financial Services Board (FSB) by a group of rival bidders, who believe they were cheated out of the pizza prize. The investigation may go wider, as Domino’s executives were also aware of the discussions during the period of the suspected insider trading, and Domino’s is also named in the complaint.
Domino’s is a highly successful food brand, and the South African business could be worth billions of rand.
At the heart of the complaint is an allegation of an unusual leap in shares traded in Taste Holdings just before news was made public that it had secured a deal with the American Domino’s Pizza Corporation.
The rival bidders have been engaged in legal action against Taste Holdings and Domino’s since they received the shock news that their own offer to secure the SA and regional franchise for the pizza brand had been rejected – even though they say they had paid a deposit to the American fast food chain, and had a verbal agreement with them. The court action centres on an attempt to halt the rollout by taste of Domino’s stores in South Africa, with Domino’s being sued for breach of contract. There is also an attempt to secure accurate information on the timing of each stage of Taste’s deal with Domino’s, as well as to have sight of Taste’s share register.
Taste executives, including CEO Carlo Gonzaga, are believed to have signed their agreement to bring the brand to SA with Domino’s at the US company’s global HQ in Ann Arbor, Michigan, in the week of March the 13th last year – although the exact time and date of the sealing of the deal has yet to been disclosed.
If, as the unsuccessful bidders claim, the deal was signed around the time there were large trades in Taste Holdings’ shares, then there are serious questions over whether these share transactions amounted to insider trading.
The South African team which is taking on Taste Holdings and Domino’s operate as Mauritius-based International Foodservice Concepts (IFSC). They include Rutger-Jan van Spaandonk, who is the head of the Core Group, which is the official SA and Nigerian importer of Apple technology products. The team also includes Keith Warren, who is the former local head of the Yum Group, which holds the KFC franchise.
Said van Spaandonk, after he was contacted for comment by ZA Confidential: “We have gone to court already to seek full details of the share dealings, but have been thwarted at every turn.
“Meanwhile, we have obtained an incomplete copy of the Master Franchise Agreement Term Sheet between Taste Holdings and Domino’s – which fails to include the crucial section with the date that this was signed.
“We are left with no choice but to ask the Financial Services Board to investigate this matter.”
In a related development, he said he is still investigating how Taste Holdings managed to speedily tie up its deal with Domino’s just as he was concluding his own negotiations, as he is convinced that the information and data required should have taken months to collate.
“I have every right to raise these issues as a citizen and as a shareholder of Taste Holdings,” he said.
The letter to the FSB says that IFSC “have come across information that gives the strong impression that insider trading may have taken place in relation to certain Taste Holdings shares.
“Further, it appears that very sensitive and material information may have been disclosed by individuals for the unfair benefit of themselves or others.”
The letter asserts that on 13th of March last year, in the same week that the agreement on Taste’s Domino’s deal was being signed, “a total of 800,000 shares in Taste Holdings were traded, which was the second largest volume traded in the period between 1 January and 8 September 2014.
“The day with the largest volume traded was 10 April 2014 when Taste Holdings formally announced the conclusion of the Master Franchise Agreement with Domino’s Pizza publicly via a press announcement and a SENS release.
“We trust you will agree that a single occurrence of a volume of 800,000 shares traded is a highly improbable statistical event…..
“Given that acquiring the Domino’s Pizza Master Franchisee had such a material impact on the fortunes of Taste Holdings upon formal announcement as evidenced by the volume of shares traded (1.65m on 10 April 2014) and appreciation in market capitalisation (R130m based on 9 April 2014 closing of R3.60 and intra-day high of R4.25 on 10 April 2014) the suspicion arose that insiders that had access to information about the conclusion of this term sheet may have used it to their own advantage (or given it to others) in anticipation of a favourable move in the share price upon the official announcement of the conclusion of the actual Master Franchise Agreement.”
It is also alleged that Taste Directors offloaded shares between the 30th of June and July the 10th, and that this “in actual fact coincided with material dates in our legal dispute.”
IFSC is still involved in court proceedings to secure information about the exact timing of Taste’s signing of the Master Franchise Agreement Term Sheet with Domino’s. However, as van Spaandonk has complained, the document which has been handed over has a missing section – which is believed to contain signatures and a crucial date.
ZA Confidential has seen a number of court documents and the letter which IFSC has sent to the FSB. The Court action is continuing.
Taste Holdings bosses held an analyst presentation today in Johannesburg on their annual financial results.
Gonzaga told ZA Confidential that he was not yet aware of the letter to the FSB.
And he was dismissive of efforts by IFSC to halt Taste Holding’s rollout of Domino’s outlets in SA.
He said there is “no way they will get an interdict” and Taste would not have gone ahead with its Domino’s rollout if it was worried this could be halted.
He said that IFSC has admitted that it did not have a franchise agreement with Domino’s and “it is all rubbish.”
He said he was expecting a court judgement on the matter “quite soon.”
He later expressed frustration to ZA Confidential that the matter had been raised in a public forum, and offered to tell his side of the story.
Watch this space.
The Taste Holdings results were presented at the JSE, and afterwards there was ample wine on offer to guests. There were samples of Domino’s pizza, which were delicious when hot, but less so when they had cooled down. The other food was not of a standard one would have expected to receive from a company which is in the food business.
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