This post is part of the On the Margin blog.
The bidding for Panera Bread Co. might not be done.
According to the New York Post, 3G Capital might make a run at the bakery-café chain. 3G is the Brazilian private-equity group that put together Burger King, Tim Hortons and Popeyes owner Restaurant Brands International Inc.
But CNBC came back this morning, saying there is “no truth” to reports of a 3G bid.
The dueling reports come a week after JAB Holding Co., in a surprise deal, agreed to pay $7.5 billion, or $315 per share, for St. Louis-based Panera.
The idea that someone could step in and best one of the most expensive deals ever, at a multiple of 19.5 times earnings before interest, taxes, depreciation and amortization, or EBITDA, seems astounding. Yet 3G is perhaps the one entity that would do it.
After all, Restaurant Brands International, which 3G assembled with its combination of Burger King and Tim Hortons in 2014, has already agreed to pay a 21 multiple this year for Popeyes Louisiana Kitchen.
In a note this morning, Baird analyst David Tarantino said 3G would have to pay more than $325 per share — and probably $350 — for Panera.
That’s probably not a problem. Much like JAB Holding, 3G is perfectly willing to blow past preconceived notions of what restaurant companies are worth on the open market.
There is a lot to like about Panera. Its Panera 2.0 initiative is working. The company has a delivery plan in the works. But it also has a high number of company-owned locations and little international presence.
International expansion and refranchising could enable 3G to easily swallow a high price for Panera Bread.
Still, there are doubts about such a deal, as the CNBC report suggests.
Stephen Anderson, analyst with Maxim Group, noted that 3G is still digesting the acquisition of Popeyes and would have to take on debt to swallow Panera. And, he noted, 3G and JAB are allies. As the Post noted, the two firms have invested in one another’s deals, and JAB CEO Olivier Goudet is chair of 3G’s Anheuser-Busch InBev.
There are also doubts whether Panera would accept any overtures from 3G Capital, given the company’s reputation and its potential culture clash.
As he’s been saying in interviews over the past week, Panera founder and CEO Ron Shaich wants to stay with his company after it gets sold to JAB. He also chafed at demands for cost cuts by activist investors. Shaich has spent years investing in the business.
But 3G has a different way of doing things. It comes into an acquisition and cuts the hell out of costs, while relying on younger employees — even at the executive level. And then the company is aggressive at everything, from marketing to expansion to refranchising.
The model has proven to work wonders at Burger King, which has larger, more experienced operators, but which also needed a kick in the teeth when it was acquired in 2010.
There are signs, however, that Tim Hortons franchisees in Canada are chafing at the changes RBI is making there.
“We suspect [Panera’s] current board could find difficulty agreeing to a partnership with 3G unless the bid is substantially above JAB’s offer price, given the cultural/philosophical differences that could exist between the two parties,” Tarantino wrote.
Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.
Contact Jonathan Maze at [email protected]
Follow him on Twitter: @jonathanmaze