LONDON — Over the last several years, a European family business has spent more than $40 billion assembling a coffee empire. JAB Holding Company has acquired the American brands Peet’s Coffee, Caribou Coffee and Keurig Green Mountain, all since 2012. It
also combined the European coffee giant D.E. Master Blenders 1753 with
the coffee business of Mondelez to create a company now known as Jacobs
Douwe Egbert. Then it bought the high-end coffee retailers Stumptown
Coffee Roasters and Intelligentsia. Mondelez continues to own 25 percent
of Douwe Egbert and has a similar stake in Keurig. Now JAB needs somewhere to sell all that coffee. On
Wednesday, JAB, which is privately held, said it would add the Panera
restaurant chain to its growing empire of American coffee and food
favorites for $7.5 billion, including debt. It
is only the latest effort to expand into restaurants by JAB, the
investment arm of the Reimann family of Germany, who are heirs to the
consumer goods company Joh. A. Benckiser. In 2014, JAB bought the bagel
chain Einstein Brothers, which it has been combining with Caribou is
some markets. And last year, it paid $1.35 billion for Krispy Kreme, the
struggling doughnut chain. In
Panera, JAB will acquire a popular fast casual chain that serves soups,
salads, sandwiches and baked goods at about 2,000 locations. Panera has set itself apart by offering relatively healthy options
and being one of the first national restaurant chains to distance
itself from high fructose corn syrup. But Panera, which went public in
1991, has chafed under Wall Street’s relentless demand for growth. Ron
Shaich, Panera’s personable chief executive who controls roughly 15
percent of its stock, said one of the biggest attractions to the JAB
deal was the chance to take his company private. “For
the last 20 years, I’ve spent 20 percent of my time telling people what
we’ve done to grow and another 20 percent of my time telling people
what we’re going to do to grow,” Mr. Shaich said in an interview. “I
won’t have to do that anymore.” Investment
analysts have speculated for years that Mr. Shaich, 63, has been
looking for a way to reduce his role at the company after spending more
than two decades building it up from a tiny 400-square foot cookie store
in Boston. Mr.
Shaich, however, said that he planned to continue to lead Panera.
“Nothing will change,” he said. “The management team and I will remain.” With
the acquisition of Panera, JAB will have spent more than $40 billion in
what appears to be a big bet that it can muscle in on a market
dominated by Starbucks and Nestlé. It
takes on Panera at a time when it has two large turnarounds on its
hands, Krispy Kreme and Keurig Green Mountain. The doughnut chain was a
phenomenon several years ago, then fell on hard times and has never
fully recovered. Keurig,
which dominates the single-serve coffee market, has struggled as
competition cut into its profitability. Then it made a big bet that fell
flat on a single-serve machine to make cold drinks, and JAB stepped in. The
restaurant business in general has been in the doldrums for the last
couple of years, with most big chains struggling to eke out increases in
same-store sales of even 1 or 2 percent. Panera has done better than
most. The company moved faster than others to build a mobile ordering
system and cleanse its menu of ingredients like artificial preservatives
and high fructose corn syrup that consumers do not want. The
NPD Group, a research and consulting firm, predicts that traffic in
restaurants in the United States will remain stalled this year as well.
The firm predicts that quick-service restaurant chains like McDonald’s
and KFC, which account for 80 percent of the total traffic in the
restaurant industry, will see a 1 percent increase in visits this year. On
Wednesday when it announced the deal with JAB, Panera said its
same-store sales in its company-owned stores were up 5.3 percent, which
is stronger than most. But
roughly 60 percent of its stores are owned by franchisees, with sales
in those units not doing as well. Mr. Shaich said that was because the
fruits of initiatives like the mobile ordering system, which were rolled
out first in company-owned stores, have yet to fully show up in the
performance of franchisees. He
said JAB had no plans to make changes. “They are hands off,” Mr. Shaich
said. “These guys have a track record for investing in great brands and
companies and letting management do their jobs.” Under
the terms of the transaction, JAB BV, the investment vehicle executing
the transaction for JAB, would pay $315 a share, representing a premium
of 30 percent to Panera’s 30-day volume-weighted average stock price as
of March 31, the last trading day before media reports that Panera was
exploring a potential sale. JAB BV would also assume about $340 million
in net debt. “We
strongly support Panera’s vision for the future, strategic initiatives,
culture of innovation, and balanced company versus franchise store
mix,” Olivier Goudet, JAB’s chief executive, said in a news release. “We
are excited to invest in and work together with the company’s
management team and franchisees to continue to lead the industry.” The
transaction is expected to close in the third quarter and is subject to
shareholder and regulatory approval. Mr. Shaich and entities affiliated
with him have agreed to vote shares representing about 15.5 percent of
the company’s voting stock in favor of the transaction. Morgan
Stanley and the law firm Sullivan & Cromwell are advising Panera.
Goldman Sachs, JPMorgan Chase, Bank of America Merrill Lynch and BDT
Capital Partners, and the law firm Skadden, Arps, Slate, Meagher &
Flom are advising JAB. In addition, entities affiliated with BDT are
acting as minority investors alongside JAB, which they also did in the
Krispy Kreme deal. International New York Times
