Jollibee buys 40% of US-based Smashburger

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May exercise full buyout by 2026 at latest

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Publicly-listed Jollibee Foods Corp. (JFC) is poised to have a bigger bite of the $100-billion US burger market.

This developed as the country’s biggest, and probably most popular restaurant chain, just bought 40% of America’s emerging upmarket quick-service burger joint Smashburger for $99 million.

In a disclosure to the Philippine Stock Exchange, JFC said its board of directors approved on Tuesday its 40 percent acquisition of SJBF LLC—the operator and franchiser of Smashburger—through its wholly owned subsidiary Bee Good! Inc. (BGI).

BGI acquired the minority stake in SJBF from its parent company, Smashburger Master LLC (Master).

Smashburger, which is based in Denver, Colorado and has 335 restaurants in 35 states and 7 countries, is reportedly in a globalization mode, just as Jollibee intends to further expand into the international market, especially in the US.

As of end-June, JFC was already operating 3,001 stores—2,374 in the Philippines and 627 abroad.

JFC officials said the deal would make the US one of the company’s most important markets and drivers of long-term growth, along with the Philippines, China and Filipinos overseas.

JFC’s global expansion is in line with its five-year plan to grow its net income and revenues by double digits yearly in a bid to make the company one of the Top 5 quick-service restaurants (QSR) in the world.

At present, JFC is the 10th largest QSR in the world, according to a Bloomberg data cited by the company.

JFC Chief Financial Officer Ysmael Baysa said earlier JFC’s goal to reach the Top 5 level is doable in a span of about seven years, given the company’s organic growth of new and existing stores, as well as acquisition of new businesses abroad.

“Smashburger is one of the fastest growing restaurant brands in the US,” the officials said.

“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 burger market, a food segment which is estimated to be almost three times larger than the pizza, sandwich or coffee segment in terms of sales.”

The US-based burger chain’s enterprise value has been pegged at $335 million, while its equity value is at $248 million.

Under the agreement with Master, BGI has the option to purchase up to 35 percent additional stake in SJBF from 2018 to 2021, and the balance of 25 percent may be acquired between 2019 and 2026.

“The purchase price for the remaining 60 percent will be based on the achievement of certain financial performance targets agreed between BGI and Master,” the company said.

Last June, in JFC’s annual stockholders meeting, officials said the company is in the process of scouting for a quick-service food chain in the US to fortify its hold of the US market.

Aside from the US, the company’s “main pillars”—where JFC focuses its businesses and sees great opportunities—are the Philippine and Chinese markets.

JFC said BGI is expected to complete the acquisition of SJBF’s 40 percent stake sometime within 2015.

SJBF is classified as a Delaware limited liability company (LLC), which has a different form of capital structure from a regular corporation. Equity interests of an LLC are referred to as “membership interests” and in the case of SJBF, “Class A Units” are equivalent to common stocks.

SJBF operates and franchises Smashburger restaurants, specializing in burgers meals. With headquarters in Denver, Colorado, there are 339 Smashburger restaurants globally in 35 US states and in seven foreign markets.

For 2015, Smashburger expects its system-wide sales to reach $339 million, which is about 12 percent of JFC’s estimated global system-wide sales for the same year.

Smashburger’s system-wide sales have been growing about 30% annually from 2011 to 2015, while its store network has been increasing steadily by 20 percent yearly.

The firm’s capital expenditures this year have amounted to P9.1 billion, which is 68.5-percent higher than P5.4 billion actual spending in 2014.

The P6.7 billion out of the P9.1 billion will go to expansion and operations in the Philippines, P1.7 billion for China, and the rest—P700 million—will go to the United States and Southeast Asia, and the Middle East stores.

In the first six months of 2015, JFC grew its net income by 7.2 percent to P2.7 billion from P2.5 billion, as revenues increased by 9.5 percent to P47.85 billion from P43.7 billion a year ago.

The company is aiming to open at least 300 stores worldwide this year—200 in the Philippines and 100 abroad, mostly in China.

Earlier, the fast food operator said it is also looking to establish and open initial five stores of Dunkin Donuts in China, a plan that would cost a total of around P75 million.

At the start of the year, JFC, through its international unit Jollibee Worldwide Pte. Ltd. and its partner Jasmine Asset Holding Ltd., formed Golden Cup Pte. Ltd. to be the main franchisee of the Dunkin’ Donuts brand in China. The joint venture firm is targeting to establish 1,459 Dunkin’ Donuts stores in China in the next 20 years.

Other than Dunkin’ Donut joint venture and partnership, JFC has three more joint ventures in China, including a commissary in Anhui province, and the operations of San Pin Wang and 12 Sabu.

JFC’s well-known brands include the flagship Jollibee store, as well as Chowking, Greenwich, Red Ribbon, Mang Inasal, and Burger King.

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