JOLLIBEE Foods Corp. (JFC) said it is buying a minority stake in US-based burger joint Smashburger Master Llc. as the local fast-food giant wants to eat a slice of the American burger market and veer away from serving just the Filipino communities.
Jollibee said in its disclosure to the Philippine Stock Exchange that its unit Bee Good! Inc. (BGI) will pay some $99 million for a 40-percent stake in Smashburger, which it estimates to have an enterprise value of $335 million and a $248-million equity value.
Jollibee has the option to buy the entire company in the coming years. Jollibee said it will finance the acquisition from its cash reserves and partly from its 10-year borrowing portfolio.
The company said it intends to gobble up the entire Smashburger as under its agreement, its US unit will purchase an additional 35 percent of the burger joint between 2018 and 2021, and the remaining 25 percent between 2019 at the earliest and 2026 at the latest.
“The purchase price for the remaining 60 percent will be based on the achievement of certain financial-performance targets agreed between BGI and Master [Smashburger],” it said.
The acquisition of Jollibee’s 40-percent stake is expected to be completed within 2015.
The amount, however, was still far from the $1 billion that Jollibee Chairman Tony Tan Caktiong earlier said he set aside to buy a US company.
Tan said the $1-billion market capitalization is needed for its US push to become “meaningful,” as the company is shifting away from its traditional market of serving overseas Filipinos in the world’s biggest economy.
“It should be a strong regional brand so that we can expand that. We don’t want a brand that’s already big,” Tan said.
Jollibee, known abroad to serve mainly the Filipino communities in the US, owns and operates 87 fast-food stores in the US.
Its flagship Jollibee fast-food chain has 32 outlets; Red Ribbon, 33; Chowking, 19; and Jinja, 3. System-wide sales in the US currently account for 5 percent of JFC’s worldwide system sales, the company said.
Smashburger, with headquarters in Denver, Colorado, currently has 339 restaurants—184 company owned and 155 franchised—worldwide in 35 states in the US and seven foreign markets.
Smashburger estimates system-wide sales of approximately $339 million in 2015, an amount equivalent to 12 percent of Jollibee’s estimated worldwide system-wide sales for the same year.
Smashburger’s system-wide sales have been growing at an annual rate of approximately 30 percent between 2011 and 2015, while its store network has been increasing annually by approximately 20 percent.
“This acquisition will make JFC’s presence in the US more significant, going beyond the Filipino market and serving mainstream consumers in the $100-billion US burger market, a food segment which is estimated to be almost three times larger than pizza, sandwich or coffee segment in terms of sales,” Tan said in a statement.
“This acquisition will make US one of JFC’s most important market and drivers of long-term growth along with the Philippines, China and the Filipino markets abroad,” he said.
Tan is talking directly with Smashburger Chairman Rick Schaden. “As founders and entrepreneurs, we both have built teams that focus bringing the highest and best-tasting food to our restaurant categories. Tony Tan Caktiong and I share a true passion for the restaurant business having opened and operated our very first restaurants and we believe our companies still cultivate that spirit today as we initiate this partnership,” he said.
JP Morgan acted as the financial advisor for Jollibee; Pillsbury Wintrop Shaw Pittman Llp. as legal advisor; and Isla Lipana and Co./PwC as accounting and tax advisor in this transaction.
Smashburger was advised by North Point as financial advisors and Paul, Weiss, Rifkind, Wharton and Garrisson as legal advisor.