), and I would like to get your take on its proposed combination with A&W Food Services of Canada Inc. Do you recommend that investors tender their units for the $37 in cash being offered, or exchange their units for shares in the merged company?
Now, if you have no interest in becoming a shareholder of the merged company – temporarily named A&W Food Services NewCo – you could always sell your units on the open market now and pocket the cash. But you probably won’t get $37 for them, as the units closed Friday at $34.55 on the Toronto Stock Exchange, up from the prior week’s close of $28.54 before the deal was announced.Two presentations available on the royalty fund’s website outline the deal’s potential positives.
Another potential benefit is that, because NewCo will adopt a traditional corporate structure, the company could attract more interest from institutional investors and Bay Street brokerage analysts. Currently, AW-UN is not covered by any analysts. With the current top-line royalty structure of AW-UN, investors are largely insulated from such earnings volatility. That’s one reason restaurant royalty funds appeal to risk-averse investors who are primarily seeking stable income. On the other hand, NewCo’s shares will likely be less sensitive to interest rates than A&W’s royalty units which, because of their bond-like cash flows, typically stumble when rates rise.
Similarly, combined adjusted EBITDA for the royalty fund and operating company have also been on a steady incline, rising to $91.1-million in 2023, up from $86.5-million in 2022, $77.9-million in 2021 and $65.7-million in 2020.