The universe of publicly-traded doughnut companies just got a lot smaller thanks to German private equity firm JAB Holding's acquisition of Krispy Kreme (KKD). I, for one, am not happy with the $1.35 billion, $21 per share deal.
Yesterday's headlines on the news heralded the 24% premium the transaction "handed" KKD shareholders relative to Friday's close, but it simply isn't enough. The fact that this was a $26 stock back in late 2013 may be meaningless as an argument. But what's not meaningless is that this was a company on the mend and the future was bright.
You know the Krispy Kreme story. It's a former cult stock that nearly imploded but managed to stage an incredible under-the-radar comeback. Back in the spotlight, KKD began to grow again, this time via international franchises. What was long thought of as a U.S. company ended its latest fiscal year with more than 73% of its 1,121 stores outside the U.S.
Now it will be in the hands of JAB, which is assembling quite the portfolio of brand names, including Kerurig Green Mountain, Peet's Coffee and Tea, and Caribou coffee. It sounds as though JAB may be trying to corner the coffee and doughnut market and I hope the Federal Trade Commission, which has made all sorts of trouble for the innocuous Staples/Office Depot merger, is paying attention. I don't mind paying more for paper and pencils, but protect my coffee and doughnuts!)
I always thought it would come to this for KKD. An entity would see the value offered by the brand name and make a play for it. It's a smart deal for JAB, which, along with a thriving international franchise business will also receive a nice real estate portfolio, which includes 37 owned stores (land and building) and another 38 (building only). JAB also gets a company with a very clean balance sheet, including $51 million in cash and just $12 million in debt.
I'd have been much happier with a $27-a-share takeout price, which represents 30x next year's consensus earnings estimates. Otherwise, I'd have been fine with no deal at all at this point. Longer term, I believe KKD would have continued along the path of success it has enjoyed since the comeback began in 2010. The wine simply needed more time to age.
This is not the first time, nor will it be the last, that I've been disappointed with a takeout bid for names in my portfolio. General Dynamics got Force Protection way too cheaply in 2011. Sumitomo got a great deal for Midas in 2012. Sellers usually always value their assets higher than buyers do.
But $21 for Krispy Kreme?