Panera Buyout Rumors Not Out of the Realm of Possibility, Despite High Valuation


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Bloomberg News lit up the restaurant industry today with a report that Panera Bread is exploring strategic options including a possible sale of the 2,000-plus unit chain. Deals reporter Ed Hammond wrote that the company is working with advisers to study its options and cites JAB Holding Co. (Peats, Krispy Kreme and Caribou), Starbucks Corp. (SBUX) and Domino’s Pizza (DPZ) as potential suitors.

Hammond told Market Surveillance anchor Vonnie Quinn that he sees Panera’s valuation as one potential obstacle to a deal. “Their size and valuation makes it difficult for most people to buy them,” said Hammond, citing Panera’s $6.5 billion valuation and 40x earnings multiple.

One restaurant banker who requested anonymity told the Monitor that a deal would likely involve a strategic buyer, perhaps one that missed out recently on Jimmy John’s sale to Roark Capital or Popeyes Louisiana Kitchen (PLKI) sale to Restaurant Brands International (QSR).

Veteran restaurant investor Roger Lipton doesn’t see a compelling synergy with either Starbucks or Domino’s. “Neither has real estate holdings, and Starbucks is mostly company operated, plus the returns on Panera company stores are nowhere near the returns as Starbucks stores,” said Lipton.

BTIG analyst Peter Saleh put out a report examining the rumors, he wrote that given the high valuation, it rules out a lot of the typical strategic buyers. And of those left, they don't have a great reason to buy Panera specifically. He examined McDonald's and Starbucks as possibilities, but said they could do more with $6.5 billion elsewhere. 

I dont think its a great fit for either one of them, McDonalds is moving to an asset-light model and so they are selling restaurants and trying to reduce G&A, said Saleh. This would be a distraction for them to add 2,000 Panera restaurants, 1,000 of which are company owned and not in the same vein. And it wouldnt make that much of a material difference for the bottom line.

It doesnt make sense for Starbucks, the initial rumored suitor, either.

For Starbucks, the conversation has been if Starbucks buys them it will help them on the food side. I dont necessarily agree with that at all. Starbucks, one, has been selling a lot more food in the past three or four years, thats been working, said Saleh. The issue Starbucks has with selling more food or doing different things on the menu is restricted by the size of their stores. They just dont have the space. By acquiring Panera, youre not fixing that problem in your stores.

In a research note, Baird Senior Research analyst David Tarantino said he doesn’t rule out the possibility of a sale but “hesitates to assign a high probability to a transaction at this stage, when considering the stock is now trading at multiples that likely would make the business less attractive to most non-strategic bidders.”

That leaves JAB, the money manager for one of Germany’s wealthiest families, as a potential buyer. JAB has successfully built a substantial coffee empire with acquisitions of Keurig Green Mountain, Peet’s Coffee & Tea, Danish coffee chain Baresso Coffee, Caribou Coffee and most recently Krispy Kreme, for which it paid roughly $1.35 billion or 15x EBITDA in 2016.

Lipton also believes a Panera sale would be an excellent liquidity event for Panera CEO Ron Shaich, who owns roughly 13% of the company. 

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