zooplus AG - Special Call (EditedCopy)

TEXT version of Transcript

Corporate Participants

* Cornelius Patt

zooplus AG - Chairman of the Management Board & CEO

Conference Call Participants

* Catharina Claes

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Henrik Paganetty

Jefferies LLC, Research Division - Equity Associate

* Nikolas Mauder

Kepler Cheuvreux, Research Division - Junior Equity Research Analyst

Presentation

Operator [1]

Good day, and welcome to the zooplus AG Investment Analyst Conference Call. This conference is being
recorded.

And now at this time, I would like to turn the conference over to Cornelius Patt, CEO. Please go ahead, sir.

Cornelius Patt, zooplus AG - Chairman of the Management Board & CEO [2]

Yes. Hello, and a warm welcome to this conference call that we were putting together at very short notice.
The nature is evident by now. We have announced today that zooplus has signed an investment agreement
with Hellman & Friedman to enter into long-term strategic partnership. The key components of the offer are
that Hellman & Friedman announced a voluntary public takeover offer for all zooplus shares at an offer price
of EUR 390 per share in cash.

Before going into the details of the offer and the strategic partnership, let me explain in a nutshell where the
management of the Supervisory Board of zooplus welcome the strategic partnership and support the offer.
We've signed this investment agreement after careful and structured review of our strategic options. After this
review, we are convinced that the strategic partnership with Hellman & Friedman will help us win the
growing and fast-evolving European pet category in the long run. We all know the European pet market is at
an inflection point. We faced, we should say, enjoy a major shift towards the online and at the same time, we
see rising customer expectations, and as a result, a changing competitive landscape. We phrase it as, we have
the market opportunity but also market challenge to fully capture this market opportunity, the resulting long-
term growth opportunities. We will strengthen our position as the leading European online pet platform, and
we have to prioritize sustainable growth for that. And we have to do value creating investments that are more
important than short and midterm earnings. This strategy is fully backed by Hellman & Friedman. Therefore,
we are convinced that the partnership creates long-term value to the benefit of our company, our customers,
our partners and our employees. At the same time, it provides for our shareholders the opportunity to realize a
significant part of their future envisaged long-term value creation immediately and upfront and without
further risk.

Let's look into the details, so go to page 2, the offer features. We see on the left side of the chart exactly the
metrics of the offer. The offer includes a significant premium [indiscernible] for our investors. We benchmark
against 3 KPIs. We have a 50% premium over the 3-month VWAP. We have 40% premium for the closing of
our share exactly yesterday, August 12. And lastly, we also offer a 34% some - of some premium over the all-
time high closing that we had just a couple of weeks ago. So we see, according to all 3 benchmarks, we offer
top value public M&A offer here. In Germany, the offer also implies a fully diluted equity value of
approximately EUR 3 billion. Also, I would like to inform about other transaction details. First, the
acceptance threshold, which is at 50% plus one share intending at Hellman & Friedman being willing to take
over the corporate and governance responsibility at zooplus. There is no intention to enter into a domination
and/or a profit and loss transfer agreement. The old transaction is 100% equity funded, which makes -- this is
also from a company perspective, a highly attractive proposition. Furthermore, Hellman & Friedman has
already secured approximately 17% of the shares via irrevocable tender commitments from key shareholders
including the management board members and including Maxburg Beteiligungen, which is one of our long-
standing investors. Maxburg also has been present in the Supervisory Board at zooplus for about 7 years now.

Next page. We would also like to inform you about the background of Hellman & Friedman. Of course
Hellman & Friedman as a top-tier private equity company does not need further introduction. And we'd like
to highlight a couple of elements that make Hellman & Friedman particularly suitable partner for the
company at zooplus, the company for which freight we are responsible. Hellman & Friedman has a clear
focus on growth strategies, allows companies to go through investment cycles and is willing exactly for that -
- with that combination of good focus and willingness to invest to unlock the growth opportunity that our
category, the European pet category offers. We benefit from the category shift towards online. We also benefit
from a strong sector growth, both of that is fully understood and appreciated, and is also fully understood and
appreciated by our future partner Hellman & Friedman because of their strong sector expertise. They have a
long-standing investment track record in consumer-centric growth businesses. They back entrepreneurial
success stories and they aim for companies, which are already substantial in size or can grow into much
bigger size. So that is something where we can clearly say everything fits together.

Second hallmark of the activities of Hellman & Friedman is hands-on support, including also support for
best management of all the relevant functional contributions that the growth of the store needs. So we would
have access to the expertise in how to build world-class teams. Overall, we would have access to help and
how to expand our logistics capabilities and competencies, and we would have access to digital marketing
know-how and would have access to consumer branding, skills. And with that one, we would simply make
full use of the financial flexibility offered to us.

Lastly, Hellman & Friedman has a track record in holding on to investments for unusually long periods of
time. And so we see long-term growth potential that also asks ideally for long-term committed partner. And
we see that Hellman & Friedman is willing to go that way with us for long -- for as long as possible, would
take for as long as we can grow, and that's for many years to come.

Now when looking into the process, of public takeover, we stand exactly at the beginning of the public part
of the process. We have been announcing -- or Hellman & Friedman has been announced -- has announced
the decision to make the public offer, which is now under revision or scrutiny by the buffing. This is a
standard process and will take between 10 to 15 days. Once this review has been done, we start the
acceptance period and which will usually be between 4 to 6 weeks. After that, we would get the
announcements of the results. And that is well because we have this 50% minimum acceptance threshold.
There would be the opportunity for modifying exactly the terms of acceptance, and that would then be done
in combination with an additional acceptance period of usually 2 weeks. In parallel to the acceptance and
additional acceptance period, we would run the regulatory approval process and expect to have the closing
done at the beginning of Q4 2021. So as you can see, we're looking into something where we are starting
with, let's say, a clear plan how to take the whole thing to meaningful closing and within a total of roughly 8
to 10 weeks. We would then prepare the company exactly for something that we would phrase as the next
chapter in the development of -- from -- of zooplus. Zooplus by now has been publicly listed for about 13
years. It has been a terrific journey, so to speak, over these 13 years. There's also now good reasons that we
were explaining initially and probably a little bit too compact why we think this is an offer that the company
should be happy to have. And should -- by management and supervisory both should be happy to accept it.
The final say, of course, is with our investors.

And on that note, we would like to invite now questions and would like to -- we will provide as many
answers as we can give at that stage.
Question And Answer

Operator [1]

[Operator Instructions] We'll hear first from Catharina Claes with Berenberg.

Catharina Claes, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [2]

I would be interested in the process that led to this offer now. You mean that there has been a careful process
of review of strategic options. What does it mean? Did you have multiple parties interested to -- that were at
the same table? Did you have other approaches? How did you select this offer now?

Cornelius Patt, zooplus AG - Chairman of the Management Board & CEO [3]

Yes. Okay. Thank you. Good question. In fact, I try to be brief, although it's a complex question. We've been
in these calls for many, many years, and that always has been a kind of trade-off between long-term growth
and short-term profitability at zooplus. And that -- that trade-off is deeply built into the business model of
zooplus. So at the moment we acquire customers, we have upfront costs and then also the revenues that we
do with the customer over the lifetime require patience because it takes many, many years to fully, let's say,
use the potential to one customer relationship. Lastly, also, our customers tend to evolve into better
profitability over time with the usage of our own brands portfolio increasing over time. And that's very
important for the margin mix. All retailers have the similar challenge of being in the need of having own
brands offerings in order to run a healthy margin mix. And in as a result, the company always has been strong
at growth but the company also would have to explain a bit why profitability short-term is not a good
indicator for long-term profitability. So we have a very attractive long-term earnings model. But the short-
term profitability isn't that say, impressive or the long-term potential is not that feasible. That led to a
situation we said, is it -- is it really ideal the way the company is helped, the way the company is now
governed, is the company ideally positioned in public markets. And what we see is that it's worthwhile
looking or that what we saw is that it's worthwhile looking into alternatives, looking into other models. And
we took on the competence of the leading U.S. investment firm and their European practice in order to
evaluate our options, both in the scenario of remaining publicly listed as we do, but also venturing into
rebuilding our ownership structure. And as a result of that exercise, of course, we spoke to multiple parties
that could have a role in such a change in ownership in such a transformation and over the way we run the
business and Hellman & Friedman clearly came out as the company that has the best possible ambition for
zooplus, the clearest overlap exactly with what we see as the best strategy for the company and the real
thinking, and we saw that Hellman & Friedman also has all the resources, financial and also scale-wise in
being a good future owner of the company. And lastly, Hellman & Friedman was putting on the table the best
conditions -- terms and conditions for our shareholder base. And this is why we took exactly the talks with
Hellman & Friedman to the status where we are now.

Catharina Claes, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [4]

Great. So that means that they have -- just to clarify whether you comment on this, that they have been other
offers? And then has it only been investment companies? Or has it also been other players in the industry that
have been involved. I'm just trying to find out like how you approach this and also what the gap?

Cornelius Patt, zooplus AG - Chairman of the Management Board & CEO [5]

We can't be very specific on this because the nature of these calls is that they deserve some confidentiality.
But we can assure you that we've been looking into all available options and that we did it with extremely
competent help.

Catharina Claes, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [6]

Okay. Yes, I think that's it from my side. I just wanted to really make sure that I have the information that the
process was open to all interested parties at -- beforehand and that has been evaluated and that everyone of
them has the same information especially.

Cornelius Patt, zooplus AG - Chairman of the Management Board & CEO [7]
Yes.

Operator [8]

We'll hear from Nikolas Mauder with Kepler Chevreaux.

Nikolas Mauder, Kepler Cheuvreux, Research Division - Junior Equity Research Analyst [9]

I have 2. You commented on the time line. Can you extend it perhaps a bit by indicating when should the
offer go through as planned. The delisting would take place like immediately afterwards? Or will there be
like a period in between? And the second question, it might not matter too much anymore, but would you
have announced the same sort of investment program that you outlined under Hellman & Friedman's
ownership. Without a takeover offer behind it, would you have sort of come out on Tuesday saying we'll
reinvest in growth and sort of the EUR 60 million in EBITDA, we now have will serve the purpose of
accelerating growth?

Cornelius Patt, zooplus AG - Chairman of the Management Board & CEO [10]

Yes. Let me take the second question first. Clearly, we have a strong overlap, and I discovered that quite
early on between what Hellman & Friedman sees as the best development plan for zooplus and what
Management and Supervisory Board see for zooplus. And we simply see that the circumstances of ownership
would benefit from a large concentration would simply see that we can push a strategy that was already, let's
say, within the trajectory of zooplus, but just much more committed, much more focused and also would
probably also had clearer or an even stronger commitments to investments and co-investments. For example,
in logistics and jointly with our logistics partners. So practically speaking, I would say, Hellman & Friedman
allows us to do many of the good things that we did already in the past, just a little bit faster, a little bit more
intense and maybe occasionally also 1, 2 things that without their help, we wouldn't even dream about
thinking or think about dreaming however you want to put it. We see that Hellman & Friedman allows us to
push the envelope. And we see it comes exactly at the right time because pet e-commerce is expanding from
a niche segment of the total market into something that is more mainstream than niche.

Nikolas Mauder, Kepler Cheuvreux, Research Division - Junior Equity Research Analyst [11]

Okay. Good. And a quick comment on the delisting potential delisting?

Cornelius Patt, zooplus AG - Chairman of the Management Board & CEO [12]

Yes. The delisting, we can't comment much on that, but we also see that as less important than the change in
ownership structure and the clear commitment to grow the strategy. The delisting practically is just the
closing chapter of something that is simply logical after Hellman & Friedman has taken over control over a
large stake of the total equity of zooplus.

Operator [13]

We'll now take a question from Henrik Paganetty with Jefferies.

Henrik Paganetty, Jefferies LLC, Research Division - Equity Associate [14]

It's Henrik from Jefferies. Also one quick question from my side. You mentioned that you talked to multiple
parties during that assessment of strategic options. Were there also players involved from like peers from the
U.S. and peers from Germany, like other players in the pet supply market? Or was that purely on PE, private
equity based. If you could comment on that, that would be super helpful.

Cornelius Patt, zooplus AG - Chairman of the Management Board & CEO [15]

No, we can't disclose details on who we've been talking to. We can confirm one more time that both
Management and the Supervisory Board made sure that we take a good 360-degree look around.

Operator [16]
[Operator Instructions] With no additional questions in the queue, I will turn the call back over to Cornelius
Patt for any additional or closing remarks.

Cornelius Patt, zooplus AG - Chairman of the Management Board & CEO [17]

Yes. Thank you very much. We know it's peak holiday time. So that's why we are particularly grateful that,
that you took the time at very short notice to listen to further comments. I think the offer speaks for itself,
Hellman & Friedman speaks for itself. And also you having covered zooplus for multiple years. And you also
know exactly about the opportunities that zooplus can offer. So maybe this is really just a very logical next
step exactly in the evolution of the company zooplus. So we will now go exactly through the offer process
that also includes a further investigation of the offer quality that will then also result in recommendations,
both by both boards, the Supervisory Board and the Management Board. So stay tuned for more news. But
meanwhile, look into the details of the offer and comment on it. Thank you very much, and that will be it for
today.

Operator [18]

With that, ladies and gentlemen, this will conclude your conference for today. We do thank you for your
participation, and you may now disconnect.