Restaurant Brands International, which owns Burger King and coffee-shop chain Tim Hortons, said Tuesday that it had agreed to purchase the rapidly expanding company formally known as Popeyes Louisiana Kitchen for $79 per share. The deal reflects a 27% premium on the 30-day average of the company's share price.
Popeyes has more than 2,600 locations, about double what it had in 2008. Some 97% are owned by franchisees.
Restaurant Brands said it would seek to "continue developing the brand at an increasing pace" in the U.S. and foreign markets.
Now based in Atlanta, the 45-year-old Popeyes was founded by entrepreneur Al Copeland in New Orleans. The company is known for its Southern-inspired menu, featuring fried chicken and seafood. But the acquisition comes amid slowing sales growth for Popeyes after several years of expansion.
Sales at Popeyes stores open at least a year rose 1.7% for the fiscal year ended Dec. 25, according to an estimate released in January. That came after same-store sales growth of 5.9% in 2015.
"The key to long-term success at Popeyes will be a focus on guest satisfaction and franchise profitability," Restaurant Brands CEO Daniel Schwartz said in a conference call. "The team has done a great job setting the foundation for future growth."
The deal marks the latest in a series of moves that bear the hallmarks of Brazilian investment firm 3G Capital's approach to financial restructuring.
Known for targeting acquisitions for revenue growth and cost cutting, 3G Capital, which engineered the Burger King acquisition of Tim Hortons, controls about 42.6% of the voting shares in Restaurant Brands, according to a public filing. The investment firm, paired with investor Warren Buffett's Berkshire Hathaway, previously helped engineer the merger of Kraft and Heinz.
It was not immediately clear whether Restaurant Brands plans to close any locations, cut any jobs, combine any corporate operations or merge purchasing operations. The company did not respond to a request seeking comment and an interview.
But the Popeyes brand "will be managed independently," Schwartz said on a conference call without taking questions.
Restaurant Brands has placed Burger King on a growth track by reemphasizing value in its product lineup, UBS analyst Dennis Geiger said Feb. 13 in a research note.
The average Popeyes location has $1.4 million in annual revenue, Schwartz said. Franchisee profitability averaged $340,000 per location in 2015, according to a public filing, up from $188,000 in 2008.
The company opened 216 net new stores in 2016 after opening 219 in 2015.
|(Photo: Flickr/Jason Lam)|
Whopper of a deal: Burger King owner buys Popeyes
Mardi Gras is still a week away, but it looks like the Burger King is ready to take a stroll down Bourbon Street.
Restaurant Brands, the parent of Burger King and the Tim Hortons doughnut and coffee chain, announced Tuesday that it is buying Popeyes Louisiana Kitchen, the company famous for its Cajun cuisine, for $1.8 billion.
The deal values Popeyes at $79 a share, nearly 20% higher than where the stock closed Friday. Shares of Popeyes (PLKI), living up to the company's "Louisiana Fast" motto, quickly rose 19% Tuesday morning to just under $79.
Reports of a Popeyes takeover surfaced last week, although there was also speculation that Restaurant Brands was considering buying another fast food chicken chain, El Pollo Loco (LOCO). El Pollo Loco shares fell more than 1% Tuesday.
Restaurant Brands CEO Daniel Schwartz said in a statement that the company looks 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."
Popeyes has more than 2,600 restaurants around the globe. The company was founded in New Orleans in 1972, but its corporate headquarters is now in Atlanta.
Popeyes CEO Cheryl Bachelder also noted that the "high trust partnership that we enjoy with our franchise owners" was a plus for Restaurant Brands.
I spoke with Bachelder in November 2015 about that partnership. At the time, many big fast food chains were starting to worry about how rising minimum wages across the country could be a problem for franchisees.
Bachelder dismissed those concerns.
"We will adjust to increased costs just like we have before," she said. "Life will go on. There's been too much hubbub about it." She added: "Profits make you happy. Our franchisees have been making a lot more money."
If that trend continues, Popeyes could help make Restaurant Brands an even more formidable threat to top rivals McDonald's (MCD), Wendy's (WEN) and KFC owner Yum! Brands (YUM).
Restaurant Brands has been a much hotter stock than those three lately, thanks in large part to stronger sales at Burger King.
The company has made a name for itself recently with gimmicky food mashups, such as onion ring-shaped chicken fries, Cheetos Chicken Fries, burgers with red and black buns and the Whopperito. Yes, that's the marriage of a burger and a burrito.
Adding Popeyes to the mix gives Restaurant Brands an even bigger presence in the red hot, but increasingly crowded, market for chicken franchises.
In addition to KFC and El Pollo Loco, there's competition from Bojangles (BOJA), Wingstop (WING) and upscale burger joint Shake Shack (SHAK), as well as privately held chains with cult followings like Chick-fil-A and Zaxby's.
Wall Street seemed to think the deal will be good for Restaurant Brands as well. Shares rose more than 7% Tuesday. The stock is up more than 20% in 2017.
So it's a win for two influential investors that back Restaurant Brands, too. Bill Ackman's Pershing Square owns an 18% stake in the company. And Warren Buffett's Berkshire Hathaway has a nearly 4% stake.
Durham's first Popeyes restaurant causes major traffic dilemma
Durham’s first Popeyes restaurant, which has been open for one week on Guess Road near Interstate 85, has caused the city to issue a traffic advisory for the area, telling drivers to take other routes when possible.
The restaurant is family-owned and operated, and the owners were apologetic about any traffic issues it's created.
“We are truly doing our best to try and get folks in and out of here to try and prevent the volume and the extended waits and the traffic that the business has brought to the town,” said store owner and manager Lubna Ghanayem. "I think busy is almost an understatement."
The owners have hired officers to direct traffic and said they would for as long as it's necessary and crowds die down.
The Louisiana-style fried chicken restaurant has created long lines and traffic frenzies at other locations soon after opening, including restaurants in Kalamazoo, Michigan; Lexington, Kentucky; and Columbia, Missouri.
"I got my Popeyes. I'm happy, and I'm ready for my day to begin," said customer Undre Copeland, who has visited the restaurant every day since its opening.
A spokesman from the City of Durham said officials are aware of the issue, but they do not expect it to last long-term, assuming traffic calms once this initial rush is over.