Magellan makes a spicy profit on Guzman y Gomez share sale to Barrenjoey

Magellan Financial Group (ASX: MFG) has ordered a $34 million top-up of guacamole on the sale of its 11.6 per cent interest in Mexican fast food chain Guzman y Gomez (GYG), offloading the shares for $140 million to a group it partially owns.

The sale to an entity of Barrenjoey Capital Partners, in which Magellan has a 40 per cent stake, was made with the intention of seeding an investment trust comprising high net worth investors.

Magellan may also be entitled to a further payment of up to $6 million subject to the performance of GYG and the realisation of the investment by the trust.

"GYG is an outstanding company, however, the sale of our shareholding is consistent with our strategy to focus on our core funds management business," says Magellan chairman Hamish McLennan.

"The upfront sale price represents a 36.3 per cent premium to our entry price in January 2021. We believe the sale is an excellent outcome for Magellan shareholders.

Related story: The rise of Guzman y Gomez: the making of a global brand

"Magellan is pleased with the performance of its Magellan Capital Partners investments. The outcome we have achieved with this transaction reinforces the strength of our partnership with Barrenjoey. We remain committed to the long-term success of Barrenjoey as a major shareholder."

The sale is subject to the completion of a pre-emptive rights process under the GYG shareholders' deeds, giving those shareholders the right to purchase Magellan's shares on the same terms.

The transaction is expected to be completed in two tranches in June and July, generating an estimated pre-tax profit on the sale of $34 million in FY22. 

Proceeds will be used to support Magellan’s ongoing capital management initiatives.

When Magellan initially paid $95.4 million for its stake at the start of 2021, it was accompanied by a separate investment by Athletic Ventures, founded by Aussie rules footballer Matt de Boer of the GWS Giants. The group comprises more than 100 high-profile athletes from various sporting codes across Australia and the world.