The announcement on Wednesday that JAB Holdings was acquiring Panera Bread (PNRA) for a reported $7.5 billion sent shivers up my spine. It wasn't because yet another restaurant chain was being taken private, or because Panera is one of the better-run restaurant success stories that is being gobbled up and removed from the public markets. No, it's because I still have a bee in my bonnet over another JAB acquisition that occurred last year.
That's when Luxembourg-based JAB acquired Krispy Kreme Doughnuts for $1.35 billion, or $21 a share. That to me was an insult to one of the great American brand names (which since has gone international) that had made an incredible comeback since nearly imploding just a few years after it briefly attained cult-stock status following its 2000 initial public offering. But that's water under the bridge. Because there were no other bids for Krispy Kreme when JAB made its play, I obviously was suffering from ownership bias.
You've got to give JAB credit. It is creating quite the brand portfolio, which includes Keurig Green Mountain, Peet's Coffee & Tea, Caribou Coffee and Einstein Noah Restaurant Group. Now that it has quite a presence in the coffee (and doughnut) market, JAB has turned to the restaurant space with the Panera deal.
However, as solid of a company and a concept that Panera is, I believe JAB is overpaying. The take-out price of $315 implies a forward price/earnings multiple of 35 based on 2018 consensus earnings estimates, and it's also 41x 2017 estimates. While that may not seem like a ridiculous price given a company of Panera's quality, this is not the environment to be overpaying for restaurants. Valuations have gotten out of hand, the restaurant space is crowded and rising labor and input costs will not help.
Of course, current Panera shareholders may believe they are being shortchanged in this deal, the way I did with Krispy Kreme. Value is in the eye of the (be)holder, but it looks to me as though they are getting a price that is more than fair (says the guy who has never owned PNRA).
If JAB wants some cheaper assets -- say some retail real estate in which to expand its coffee and doughnut empire -- it should take a look at Ruby Tuesday (RT) . It offers distressed assets on the cheap and 260 owned locations. Five dollars a share should do it, no questions asked.
