Analysts Weigh In on Caribou Deal, Sale Price

Analysts Weigh In on Caribou Deal, Sale Price

At least one securities analyst believes Caribou could fetch a higher purchase price, while another said that the $16-per-share offer accounts for the chain’s growth potential as well as its recent “choppy” financial performance.

Following news that Caribou Coffee Company, Inc., has agreed to be taken private in a deal valued at $340 million, analysts are weighing in on the sale price and what the deal means for the company.

German holding company Joh. A. Benckiser Group (JAB) agreed to pay $16 per share in cash to acquire Brooklyn Center-based Caribou. (Click here to learn more about the deal.)

Sharon Zackfia, an analyst at Chicago-based William Blair & Company, told Twin Cities Business on Tuesday that she is not commenting on the $16-per-share offer until additional regulatory filings reveal how the acquisition price was arrived at.

She said, however, that she suspects Caribou shareholders will approve the deal, although “you never know until you put it to a vote.” There’s only “somewhat of a remote possibility” that a competing bid will surface, but if one does, it would more likely come from the consumer packaged goods industry than the restaurant business, she said.

According to Zackfia, the deal could present synergies for Caribou and Peet’s Coffee & Tea, Inc., which JAB acquired earlier this year for about $1 billion. Caribou excels in its store operations, while Peet’s is very successful in the grocery market, and there could be “cross learning” opportunities for the two businesses, she said.

Matt Bendixen—a senior research analyst with Minneapolis-based Craig-Hallum Capital Group, LLC, and someone who closely follows Caribou—told Twin Cities Business on Monday that the company was a prime candidate for a buyout, and its stock “has been kind of undervalued for a while.”

Bendixen then told Bloomberg that he believes Caribou could get a better offer, adding that JAB “has got a pretty good value here on the purchase price.” Bendixen reportedly has a $19 target price on Caribou’s stock.

“We don’t think they are paying anywhere near enough,” Richard Fearon—managing director of hedge fund Accretive Capital Partners LLC, whose largest shareholding is in Caribou—told Bloomberg.

Fearon said that the price should be closer to between $30 and $35 per share. At the $16 purchase price, Caribou is “being stolen for less than 0.9 times sales and 10.5 times earnings before interest, taxes, depreciation, and amortization,” Fearon told the news outlet. For context, Peet’s was taken private at 2.4 times sales and 21 times earnings, Fearon reportedly said.

However, David Tarantino, a securities analyst at Milwaukee, Wisconsin-based Robert W. Baird & Company, reportedly wrote in a research note that that the proposed deal values Caribou “above the average for recent restaurant buyouts” and “a competing bid for Caribou is unlikely, especially when considering the mixed financial performance the company has exhibited year-to-date.”

Tarantino said that JAB’s $16-per-share offer accounts for the chain’s long-term growth potential as well as its recent “choppy” financial performance, according to a report Nation’s Restaurant News.

For JAB, the Caribou deal not only boosts its number of coffeehouses but also puts it in a position to vie for a bigger chunk of the specialty bagged-coffee market, the Star Tribune reported.

Specialty bagged coffee doesn’t sell as well in grocery stores as traditional coffee like Folgers, but it’s becoming more popular, according to the Minneapolis newspaper, which cited a Piper Jaffray estimate that 61 percent of consumers ages 18 to 24 drink specialty coffee, while 39 percent of them drink traditional coffee. (To read more, click here.)

The deal might also signal additional consolidation in the industry. After news broke that Caribou plans to be taken private, financial-services news outlet The Motley Fool posed the question, “Which coffee company gets bought out next?”

It pointed out that smaller publicly traded premium coffee businesses, including New York-based Coffee Holding Company and California-based Farmer Brothers, saw their stock prices spike in the wake of Caribou’s news—a sign that investors might anticipate a sale.

Finance & Commerce, meanwhile, reported that some Twin Cities leaders believe the Caribou deal—and the resulting infusion of foreign capital—could lead to additional growth. Bringing more foreign investments into the region has been a top goal for economic development organization Greater MSP, whose leader reportedly said that the Caribou deal will likely result in the company growing in the Twin Cities.

When announcing its planned acquisition, Caribou said that it will continue to operate as an independent company “with its own brand, management team, and growth strategy.”

A letter written by Caribou CEO Michael Tattersfield to company employees was filed with the U.S. Securities and Exchange Commission on Monday. In it, he points out that JAB does not operate businesses in which it invests. “They look for good investments and rely on management teams to operate them independently,” he said. “Therefore, we will continue to operate as an independent company with our current management team” and Brooklyn Center headquarters.

Employees’ salary, bonus opportunities, and health care benefits will not change as a result of the transaction, according to SEC documents.

Caribou, which was founded in 1992, is the second-largest company-owned premium coffeehouse operator in the United States. As of September 30, it had 610 coffeehouses, including 202 franchised locations, in 22 states, Washington, D.C., and 10 international markets.

Caribou is one of Minnesota’s 60-largest public companies based on revenue, which totaled $326.5 million for the fiscal year that ended in January 2012.