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Dunkin' Brands Inc has a stake in Allied Brands

I was trying to understand how Allied Brands (AB) is perceived by the Australian Baskin-Robbins franchisees.  Meaning do they perceive Allied Brands as a Franchisor or Master Franchisee.  My search results came across this Baskin-Robbins Australian Blog that refers to Allied Brands as a the Master Franchisee with Dunkin Brands Inc. (DBI) to be the perceived franchisor.

In the statement from the company, they claim that although Dunkin Brands has issued a letter outlining a breach of their agreement they refused to list what parts of the agreement are in breach. A plan clearly designed to soft pedal the breach, and continue misleading the share market and investors. The fact is the brand has been so completely mismanaged for so many years, this action by Dunkin was completely inevitable and predicted here and elsewhere for a long time.  

The perception of DBI being the franchisor implies that the mismanagement by AB is the reason for DBI to take action by terminating the Australian Baskin-Robbins Master Franchise Agreement.  However, this logic is flawed because DBI, through Baskin-Robbins Australia Pty. Limited, is the non-exclusive Master Sub-licensor that executed the BR Australian Master Franchise Agreement with Allied Brands.  Hence, DBI had the responsibility of servicing the franchise relationship between AB and BR.  DBI can neither modify nor terminate AB’s Master Franchise Agreement being that DBI is only a 3rd Party Master Servicer and not the Dunkin/Baskin Franchisor.   DBI is responsible for selling BR Ice Cream made in Canada (DBCL) to other 3rd party Australian consumers.  As referenced in the 2006 DB Master Finance LLC 144a Private Placement Memorandum (PPM):  

The Master Issuer and BR Australia will enter into a Master Issuer IP Sublicense Agreement pursuant to which the Master Issuer will grant BR Australia a non-exclusive sublicense throughout Australia to engage in the business of purchasing Ice Cream Products from DBCL and reselling those Ice Cream Products to the DBCL Products Purchasers that operate Baskin-Robbins PODS located in Australia pursuant to its Product Sourcing Agreement with DBCL. BR Australia shall also have the right to enter into similar New Product Sourcing Agreements for the supply of Ice Cream Products for resale in Australia. The term of the BR Australia Master Issuer IP Sublicense Agreement will be 99 years.

The ownership of Baskin-Robbins Australia was transferred into a securitization, in 2006, and is a wholly-owned subsidiary of the Master Issuer – DB Master Finance LLC.  What is the purpose of BR Australia?  Referencing the DB Master Finance LLC 144a PPM:

The sole purpose of BR Australia is to engage in the following activities:

  1. to distribute all Australian Distributions to the Master Issuer;
  2. to enter into the other Related Documents to which it is a party;
  3. to engage in certain other activities required or permitted under the Related Documents;
  4. to enter into New Product Sourcing Agreements relating to the sale of Ice Cream Products in Australia;
  5. to import Ice Cream Products manufactured by DBCL into Australia, which products are subsequently resold to a third party and ultimately sold by such third party to Baskin-Robbins Franchisees located in Australia; and
  6. to license, on a royalty-free basis, the Ice Cream IP from the Master Issuer pursuant to its Master Issuer IP Sublicense Agreement.

Now, that we’ve included the topic of securitization into the mix – the US franchisee’s are starting to learn the true nature of DBI in the post securitization environment.  According to the indenture documents, DBI is the “global” 3rd party Master Servicer and the predecessor franchisor of Dunkin’ Donuts and Baskin Robbins.  Word on the Street, is that success of the Burger King deal will set the market tone for restaurant deal activity going forward.  This will put other restaurant systems into mergers & acquisitions mode – such as, DineEquity (IHOP/Applebees), Wendys/Arbys, Sonic, Dunkin’ Donuts, etc.

Prior to going public/recapitalizing, DBI would be motivated to find ways of increasing EBITDA.  Since Allied Brands is essentially a middleman for the Australian BR Ice Cream distribution, by cutting AB out of the picture, DBI can distribute directly and fatten up their gross margins in the process.  Increasing EBITDA is Wall Street’s game.  Allowing AB to become insolvent allows another to purchase their assets for pennies on the dollar in bankruptcy.  As is the case for Burger King, a franchisor would prefer to bankrupt their franchisees in order to repurchase f’ee owned assets on the cheap through bankruptcy auctions.

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