Taste Holdings falls on legal challenge against Domino’s pizza deal

JOHANNESBURG (Reuters) – Shares in Taste Holdings fell more than 3 percent on Tuesday after the restaurant group said it had received a legal challenge against the validity of its recently secured rights to set up Domino's Pizza stores.

Taste Holdings has signed an exclusive 30-year agreement to develop the Domino's Pizza brand in seven southern African countries, sending its shares surging more than 10 percent when it announced the deal on April 10.

Taste said "local aggrieved parties" – who were unsuccessful in previous negotiations with Domino's – were challenging its franchise agreement. It did not identify the parties and it was unclear where the application was filed.

Taste, which runs nearly 150 restaurants under the Scooters Pizza and St. Elmo's Pizza brands, said it was studying the legal merits of the application that cited Domino's as the main respondent.

"We are not worried about this," Carlo Gonzaga, founder and chief executive of Taste Holdings said by telephone, adding that none of the "aggrieved individuals" have or had a written agreement with Domino's Pizza.

But shares in Taste Holdings fell more than 3 percent on the news before recouping some of their losses to trade 1.6 percent lower at 3.80 rand by 1242 GMT.

Under the deal, Taste would convert its stores into Domino's outlets in several southern African countries that include Mozambique and Zimbabwe.

The deal makes Domino's the latest U.S. fast-food chain to target rising consumer spending in Africa. Yum Brands has been rolling out its Kentucky Fried Chicken stores, while McDonald's Corp is well established in South Africa.