Panera Bread Co. is authorizing $500 million in new debt to buy back shares following a “constructive dialogue" with activist hedge fund Luxor Capital Group LP, and is making progress on its refranchising program, the operator said Wednesday.
The company’s shares rose nearly 11.9 percent at midday Thursday on the news.
Panera said its board increased the company’s share repurchasing program to $750 million, buying back $500 million in shares over the next 12 months through cash on hand, cash flow and $500 million in new debt. Since 2012, Panera has repurchased about $511 million in Panera common stock, or 11 percent of shares outstanding, with about $154 million of those repurchased in 2014.
“The increase in our share repurchase program reflects our confidence in the business and our ability to continue driving shareholder value in the medium and long term,” Ron Shaich, Panera chairman and CEO, said in a statement.
The company also said it was making progress on its plan to refranchise between 50 and 150 cafés this fiscal year, with letters of intent to sell and refranchise 73 cafés.
Panera said the board and management had discussed the moves with activist hedge fund Luxor Capital, which last year joined PW Partners Atlas Fund II to press for changes at BJ’s Restaurants Inc.
“We support the action that Panera’s board of directors and management announced today,” Christian Leone, Luxor Capital’s founder and CEO, said in Panera’s Wednesday announcement. “We have long admired the Panera brand and appreciate the constructive dialogue we have had with the company.”
David Tarantino, an analyst with Robert W. Baird & Co., said in a research note Thursday that Panera’s “more aggressive stance on buybacks” and progress in the refranchising program were encouraging.
“The moves appeared motivated by proposals from activist investor Luxor Capital,” Tarantino wrote, adding that he was raising his earnings estimates for Panera. “Although the near-term earnings picture remains cloudy, we believe shareholder-friendly actions amid the presence of an activist investor can support more positive investor sentiment.”
For the fourth quarter ended Dec. 31, Panera’s net income fell 10.6 percent, to $48.5 million, or $1.82 per share, compared with $54.2 million, or $1.96 per share, the previous year. Revenue rose 1.7 percent, to $672.5 million, from $661.7 million.
Panera owns and franchises 1,880 units in 45 states, the District of Columbia and Canada under the Panera Bread, St. Louis Bread Co. and Paradise Bakery & Café brands.
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