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After leaks over the last few days that Popeyes was in negotiations to be bought, then subsequent reports that it wasn't, Restaurant Brands International Inc. (RBI), the parent firm of franchisors Burger King and Tim Hortons, announced this morning that it has reached an agreement to acquire Popeyes Louisiana Kitchen Inc. [NASDAQ: PLKI] for $1.8 billion.
RBI will finance the deal with cash on hand and financing commitments from the J.P. Morgan and Wells Fargo banks. The deal awaits regulatory approvals and the successful completion of the tender offer. The company expects to close by early April 2017.
For American franchise owners, restaurant unit economist John Gordon warns, "Restaurant Brands paid 19 times EBITDA for Popeyes. That is expensive." He thinks that the high acquisition price of Popeyes will produce long-term economic pressure for cost savings by its new owners. Gordon, the principal of San Diego-based Pacific Management Consulting Group, points out that the majority shareholder of Restaurant Brands, Brazilian private investment firm 3G Capital, has a history of reorganizing and shrinking supporting administrative personnel in companies they acquire.
Founded in New Orleans in 1972, the relocated Atlanta, Georgia-based Popeyes is the franchisor of almost 2,559 franchised restaurants as of its 2016 third quarter report. About 3 percent of the restaurants in its chain are company-owned.
"RBI has observed our success and seen the opportunity for exceptional future unit growth in the U.S. and around the world," said Cheryl Bachelder, who has served as Popeyes CEO since November 2007. "The result is a transaction that delivers immediate and certain value to the Popeyes shareholders," she stated. Bachelder has helped turn the formerly troubled chain to its current lofty heights.
Gordon thinks Bachelder's days could be numbered. Schwartz of 3G Capital quickly took over the CEO duties of its past acquisitions. "After the purchase by 3G, the then-existing chief executive of Tim Hortons, who was a new CEO, and Burger King's chief executive exited," says Gordon of 3G's takeover history. "Will Schwartz be the CEO for now a third brand, Popeyes? That would be too much for one leader," comments Gordon.
The company made no indication today that Popeyes CEO would be going anywhere.
"Whatever happens to the CEO, the future is very bright for Cheryl Bachelder," observes analyst Gordon. He points out that there are a number of troubled systems that could use her leadership and turnaround skills. "For example, the CEO of troubled DineEquity just resigned," says the restaurant analyst. The casual dining franchisor is urgently searching for the right chief executive to lift its IHOP chain and turn Applebee's around.
The unit financial analyst also speaks about how Popeyes has recruited top-notch information technology leaders to migrate from many point-of-sales platforms to a unified, pioneering point-of-sales system in the future. He thinks these leaders will easily find new opportunities.
"There is high demand in the industry for such technology leadership," says Gordon.
Restaurant Brands International [NYSE:QSR] stated that Popeyes will be managed independently in the United States. It plans to continue expanding the brand not only in the mature U.S. market, but also in international markets.
"With this transaction, RBI is adding a brand that has a distinctive position within a compelling segment and strong U.S. and international prospects for growth," says Daniel Schwartz, chief executive officer of RBI, about the acquisition. "As Popeyes becomes part of the RBI family we believe we can deliver growth and opportunities for all of our stakeholders, including our valued employees and franchisees. We look forward to taking an already very strong brand and accelerating its pace of growth and opening new restaurants in the U.S. and around the world."
Franchisees are likely to see a shift to an international focus, according to Pacific Management's Gordon. He sees some synergy between Popeyes and Burger King's international developers. "Now there is an additional brand for the development wants of Burger King's existing international licensees," says Gordon.