By Arra B. Francia
HOMEGROWN food giant Jollibee Foods Corp. (JFC) is embarking on its largest acquisition to-date with a $350-million deal to acquire California-based firm The Coffee Bean & Tea Leaf (CBTL).
In a disclosure to the stock exchange on Wednesday, the JFC said its wholly owned unit, Jollibee Worldwide Pte. Ltd. (JWPL), entered into an agreement to invest $100 million in a new Singapore-based holding firm that will acquire 100% of the CBTL brand.
JFC said the total consideration for the transaction is $350 million on a debt-free basis, which means that CBTL will have no debt upon acquisition.
“The acquisition of the CBTL brand will be JFC’s largest and most multinational so far with business presence in 27 countries… Our priority is to accelerate the growth of CBTL brand particularly in Asia, by strengthening its brand development, marketing, and franchise support system,” JFC Chairman Tony Tan Caktiong said in a statement.
The initial $100 million will represent 80% of the equity of the new holding company, which JFC will finance through a bridge loan.
The remaining $250 million will be in the form of advances to the new holding company. It will issue preferred shares worth at least the same amount in the next six to nine months in order to repay JFC’s advances.
Members of the family owning Viet Thai International Joint Stock Company will subscribe to capital in the new holding company equivalent to a 20% equity share. The company is JFC’s partner in the Superfoods Group, which owns and operates Highlands Coffee and Pho 24 mainly in Vietnam.
With Highlands Coffee and CBTL, JFC’s coffee business will now account for 14% of its worldwide system sales.
JFC also attributed the delay in Highlands Coffee’s supposed initial public offering this month to the CBTL acquisition. Instead, the new holding firm covering both the CBTL and Highlands Coffee brands will be the one to conduct a maiden share offering in the next three to five years.
Founded in 1963, CBTL is owned by International Coffee & Tea Leaf (ICT) in Los Angeles, California. It ended 2018 with 1,189 outlets, 336 of which are company-owned and 853 franchised. Of this, 284 are located in the United States, 292 are in South Korea, and 139 are in the Philippines. The rest are located in Indonesia, Malaysia, Singapore, Kuwait, Qatar, and India.
Mr. Tan Caktiong said the brand will add 14% to its global system wide sales and 26% to its total store network. CBTL will also be JFC’s second largest business after the Jollibee brand.
The CBTL acquisition is JFC’s largest to date, following the latter’s $210.25-million takeover of American fast-food chain Smashburger, according to Bloomberg data.
AAA Southeast Equities, Inc. President William Matthew M. Cabangon expressed some concern about the acquisition, considering that ICT has been incurring losses in previous years.
ICT recorded an attributable loss of $21.05 million in 2018, smaller than its attributable loss of $26.77 million in the year before.
“This is a mixed bag for JFC. It could hurt the stock in the near term since CBTL has been operating at a loss for years now and will now hurt JFC’s EPS (earnings per share). It is a dilutive acquisition,” Mr. Cabangon said in a mobile phone message.
At the same time, Mr. Cabangon also noted this could be good for JFC in the long term, as it will enable the company to ride a broader Asian consumer growth.
“This could be something global investors would take interest in.”
For PNB Securities, Inc. President Manuel Antonio G. Lisbona, the CBTL acquisition will complement JFC’s portfolio, which he noted has been dominated by hamburger brands.
“CBTL is also present in 32 countries, some of which may provide a backdoor for Jollibee or it’s other brands to enter,” Mr. Lisbona said via text.
Asked whether JFC has been acquiring too many brands lately, Mr. Lisbona said: “JFC’s long experience in its industry should provide a good level of comfort for investors.”
Rachelle C. Cruz, senior research analyst at AP Securities, Inc., noted, however, that “[t]here is market skepticism that this purchase will be earnings accretive considering Coffee Bean’s 2018 loss is about 12% of Jollibee’s profit last year.”
“Smashburger is yet to contribute positively on earnings and here is another acquisition that will probably be earnings dilutive in the next two to three years,” she said, referring to the US burger chain Jollibee took over in 2018.
Price of JFC shares lost P21.80 or 7.99% to close at P251 apiece on Wednesday. — with Bloomberg input