Published: Thu, February 23, 2017
USA | By Yvette Dunn

RBI acquires Popeyes for $1.8B

The $1.8-billion price for Popeyes Louisiana Kitchen Inc will have Restaurant Brands International Inc paying $79 per share in cash for the fried chicken restaurant chain. In the meantime, Restaurant Brands has been striking deals with local operators to open additional Burger Kings around the world.

By comparison, McDonald's Corp. had more than 36,800 locations around the world at the end of 2016. Operating in the quick service segment of the restaurant industry Tim Hortons menu includes premium coffee hot and cold specialty drinks (including lattes cappuccinos and espresso shots) specialty teas and fruit smoothies fresh baked goods grilled Panini and classic sandwiches wraps soups prepared foods and other food products.

RBI is only now growing its Tim Hortons chain internationally, with three master franchise development agreements in the Philippines, the United Kingdom and Mexico, although "these agreements took longer to strike than investors expected, while no stores have been opened under these agreements as franchisees are building the supply chain", the Cowen analysts wrote. PLKI's unit growth has accelerated in recent years and reached a "point of inflection" according to mgmt.

With the advent of newer entrants like Shake Shack and Five Guys, the fast food business has become more challenging in the U.S in the recent few years. After this acquisition, Burger King is likely to push their biscuits and fried chicken even more throughout the world. Even Restaurant Brands International Inc., an Oakville, Ontario-based company believes this to be true. Brands' board, increases the odds that Yum! will remain independent. Restaurant Brands International CEO Daniel Schwartz said of the deal, "With this transaction, RBI is adding a brand that has a distinctive position within a compelling segment and strong USA and international prospects for growth". Schwartz added, "The team has done a great job setting the foundation for future growth".

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What Will Be the Fate of Popeyes Franchisees? It remains unknown whether RBI plans to close any locations or cut any jobs.

The 14 analysts offering 12-month price forecasts for Restaurant Brands International Inc have a median target of 52.00, with a high estimate of 59.00 and a low estimate of 43.00.

Despite providing only modest near-term earnings accretion, RBC Capital Markets analyst David Palmer thinks Popeyes scalable top-line growth makes it an attractive asset for Restaurant Brands. Almost 98 percent of the brand's locations are franchised.

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