Sydney, Dec 14, 2007 (ABN Newswire) - On 7 September 2007 Retail Food Group Limited (RFG) announced that it had entered into a Scrip & Cash Terms Agreement (SCTA) with the shareholders of The Michel's System Australia Pty Ltd (TMGA), the intellectual property owner and manager of the Michel's Patisserie franchise system.

RFG announces that, following recent satisfaction of all conditions precedent (including shareholder and ASX approval), the SCTA was completed today.

Consequently, RFG is now the owner of TMGA, and by extension, the 350 outlet Michel's Patisserie franchise system.

The transaction comprised:

- a payment to the TMGA vending shareholders in an aggregate quantum of approximately $46m, and as well

- the assumption of TMGA's pre settlement corporate debt of approximately $54m, which has today been refinanced on terms and conditions satisfactory to RFG. In addition, the vendor shareholders are entitled to:

- participate in an incentivated earn out program based on TMGA's FY2008 adjusted EBIT performance (in that respect, TMGA shareholders will be entitled to be issued with RFG scrip on a pro rata basis where TMGA's adjusted FY2008 EBIT is between $13.25 million and $18 million); and to

- receive certain reimbursements and recoupment presently estimated to be a maximum of $2.5m.

Notwithstanding the date of completion of the SCTA, RFG is entitled to the whole of TMGA's FY2008 earnings after deduction of interest in respect of TMGA's pre settlement corporate debt.

RFG Chairman John Cowley said that "the disciplined acquisition of strong and iconic branded systems such as Michel's Patisserie and the recently acquired Brumby's Bakeries delivered upon the strategic growth initiatives outlined in the Company's May 2006 Prospectus".

"Not only do these acquisitions further diversify RFG's revenue streams and provide for the future strength and security of the Company's business model, they insulate and fortify RFG's franchisees within an increasingly competitive marketplace. The RFG Board is therefore comforted that the transaction is now complete and that the Company can now totally immerse itself in further driving shareholder value via the integration process", he said.

ASX/media release

RFG CEO Tony Alford added that "Michel's Patisserie represents an additional complementary franchise system which provides immediate additional earnings and scale to RFG. The acquisition increases the number of outlets under RFG's stewardship to over 1040 and positions the Company as the largest multi-retail food franchisor of domestically founded systems in Australasia".

The RFG Board remains confident that the TMGA acquisition will result (on a full year basis) in an annualised FY2008 EBIT of $32 million - an increase of $20 million or 167% over the Company's FY2007 EBIT result.

"The YTD performance would suggest that the TMGA FY2008 EBIT will be at least equal to the $13.2m guidance previously detailed and as a consequence we remain confident that the Michel's Patisserie acquisition will result in RFG shareholders enjoying a minimum EPS increase of 50% on FY2007", Mr Alford said.

"The acquisition, which brings to four the number of systems owned, provides additional opportunities for RFG and the franchisees of each of its systems by allowing for the crosspollination of products, collaborative marketing initiatives, co-branding, supply economies and leveraging of RFG's franchise management systems and growing national presence to take advantage of significantly increased scale", he said.

"Ultimately, the Michel's Patisserie acquisition provides RFG with a further platform for growth and increased shareholder value", Mr Alford said, "and the Company remains of the opinion that such positive growth can be delivered whilst also enhancing the available outcomes for its franchisees and other stakeholders".

Mr Alford reiterated those comments made at the recent AGM of the Company that "as a consequence of the TMGA Board's encouragement and the willingness of senior management to provide significant assistance, RFG's integration strategy for Michel's Patisserie will be executed within a period of time which would not otherwise be feasible or achievable".

TMGA Chairman Bill Loewenthal, who has agreed to continue as an independent non executive director of TMGA, said that he was "confident Michel's Patisserie franchisees and suppliers will be an excellent fit with Retail Food Group given its extensive and successful experience with retail based food franchise operations". John Livy has resigned his position as TMGA Managing Director but will remain on the TMGA Board as a director.

"John Livy together with Bill Loewenthal and newly appointed RFG independent non executive director Bruce Hancox collectively possess invaluable history and experience in the Michel's System, and their ongoing commitment to assist RFG in the integration phase and beyond is an asset, the enduring benefits of which cannot be overestimated" Mr. Alford said.

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