On April 5, 2017, JAB Holding, a Luxembourg-based private equity, agreed to buy Panera Bread (PNRA) for $7.5 billion. JAB agreed to pay $315 per share. The offer represents a 30% premium over the company’s 30-day trading average as of March 31, 2017—the last trading day before the rumor of Panera’s acquisition started to surface. JAB will also take on $340 million of Panera’s debt.
On April 3, 2017, Bloomberg reported that Panera has been working with advisers to look for potential suitors including Starbucks (SBUX), JAB Holding, and Domino’s Pizza (DPZ). Since then, Panera’s stock price rose. By the end of April 5, 2017, Panera was trading at $312.94—growth of 19.5% since the rumor started.
The acquisition came at a time when Panera’s 4Q16 earnings were better than expected and its company-owned restaurants posted same-store sales growth of 5.5% in 1Q17. Analysts expect the deal, which is subject to shareholders’ approval, to close during 3Q17. It’s the second-biggest deal in the North American restaurant industry after the $12.5 billion acquisition of Tim Hortons by Burger King and its parent 3G Capital Partners.
It’s important to note that 2017 has been a good year for Panera. Since the beginning of the year, the company’s stock has returned 52.6%. Better-than-expected 4Q16 earnings, a positive outlook, and the company’s measures to improve sales appear to have increased investor confidence, which led to a rise in its stock price. During the same period, Panera’s peers Chipotle Mexican Grill (CMG) and Shake Shack (SHAK) returned 19.9% and -9.3%, respectively.
The Consumer Discretionary Select Sector SPDR ETF (XLY) has returned 7.2% YTD (year-to-date). XLY invests ~9.6% of its holdings in restaurant companies.
Next, we’ll look at how the acquisition offer impacted Panera’s valuation multiple.