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Another St. Louis company sold: Panera Bread goes for $7.5 billion

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It has been a point of pride for locals to correct outsiders who knew one of the top restaurant chains in the industry only by its signature brand, Panera Bread Co.

Here, in its home base, it is St. Louis Bread Co. — or just “Bread Co.” — to regulars.

Now, the restaurant-industry darling, which grew out of a Kirkwood store that opened in 1987, is slated to become part of a Luxembourg-based investment firm that focuses on consumer brands.

JAB Holding Co., the owner of Caribou Coffee and Krispy Kreme Doughnuts, said Wednesday that it would buy Sunset Hills-based Panera Bread Co. in a deal valued at about $7.5 billion, including debt, as it expands its coffee and breakfast empire.

Unlike other St. Louis-based companies that have been bought up, there were no financial struggles indicating a sale was coming, no succession questions, no negotiation drama. Panera’s sale came out of the blue, even to analysts who follow the industry.

“This definitely was a surprise,” said Jack Russo, an analyst at Edward Jones who follows Panera and other consumer brands. “The company had been performing pretty well, especially versus the rest of the industry.”

“Pretty well” may be an understatement. Panera’s stock was trading at 33 times expected earnings, well above the industry average of 24.7, according to Thomson Reuters Datastream. From 100 bakery-café restaurants 20 years ago, Panera has grown to 2,000 with sales of $5 billion.

JAB has offered $315 in cash per Panera share, representing a 20.3 percent premium to the stock’s closing price on March 31, the last trading day before media reports of a potential deal. Shareholders “certainly can’t complain at the offer price,” Russo said. The company’s stock closed at $312.94 on Wednesday, up 14.2 percent. The deal is expected to close in the third quarter.

JAB, the investment vehicle of Germany’s billionaire Reimann family, is run by Chief Executive Olivier Goudet, who is also the chairman of Anheuser-Busch InBev.

Like the world’s largest brewer, JAB has built up an empire of coffee and food chains through a series of acquisitions in recent years, including Krispy Kreme and K-cup coffee pod-maker Keurig Green Mountain Inc.

In the back of his mind, Panera CEO Ron Shaich was probably looking to industry pressures already affecting competitors, such as an oversupply of restaurants and minimum wage increases, Russo said. A larger group could help save money on coffee or dough purchases, and cross-selling opportunities could become available down the road. In addition to Krispy Kreme and Caribou, JAB owns Peet’s Coffee and Tea and the parent of Einstein Bros. Bagels.

“They felt like they should take advantage of this,” he said. “They’ll be part of a company that has experience operating different types of concepts and has experience with consumer goods companies.”

‘We’re not moving’

St. Louisans may cringe at watching another locally headquartered company bought up by outside investors, but Shaich said not to worry.

“Nothing is changing in Sunset Hills,” Shaich told the Post-Dispatch. “We’ve been here forever. We’re not moving the headquarters.”

With about 700 people working out of the building on Watson Road, Panera has become a significant corporate presence in the region, not to mention an employer of thousands of people at dozens of area locations.

The sale is “actually going to free us up,” Shaich said. Panera probably wouldn’t have agreed to a sale with anyone else, but he said JAB was not a normal private equity firm. They’re long-term investors who let the companies they own “do their thing.” And they’re the ones who approached Panera about a sale.

“For us, it’s not something we were looking for,” Shaich said. “But what has led to the phenomenal success for Panera for a very long time is our commitment to long-term decision-making.”

Gone will be the pressures of quarterly earnings calls or the risk activist investors might buy up a stake and push for a change in strategy or cost-cutting. Panera will continue to be managed “independently by the same people,” Shaich said.

That includes Shaich. The CEO, 63, said he would stay at the helm of the company that he turned into a giant after betting on the regional St. Louis chain in 1998. It was that year that he decided to sell off Au Bon Pain, a larger bakery café chain that had bought the 20-store St. Louis Bread Co. in 1993 from a local group led by founders Ken and Linda Rosenthal.

“We want to make sure that St. Louis Bread has all the capital it needs,” he told the Post-Dispatch in 1998, explaining that the sale of Au Bon Pain extinguished $55 million in debt and gave the new Panera $15 million in cash to expand. “And that it also has the visibility on Wall Street, so it will be an easy story to tell investors.”

A year later, Shaich moved the headquarters to St. Louis from Boston, although he has long worked from that city.

Russo, the Edward Jones analyst, expects JAB to be mostly hands-off and push for little change in Panera’s operations, at least for a year or so.

“I think they’re just going to let Panera run themselves for a while and get to know the business,” he said. “That’s kind of been their style.”

Shaich said Panera customers would see no change, and he plans to continue initiatives Panera has spearheaded in recent years. Recently, it has embraced technology with new delivery apps and added iPad kiosks in restaurants where diners can place orders.

It has also touted a commitment to removing artificial ingredients from its menu and sourcing cage-free eggs and antibiotic and nitrate-free meat. It has used the efforts to market itself as a healthy alternative to other fast-casual and fast-food chains, outperforming an industry that has struggled with flat sales.

Those investments still kept earnings lower than they could have been, Russo said, forcing Shaich to explain the moves to investors.

“If you’re a private company again, you can make that investment and not worry a lot” about the quarterly earnings impact, he said.

Shaich said he spent almost half his time explaining his moves to investors, and he hopes private ownership will let the company continue its long-term, strategic moves.

“It’s not that we’re going to do anything different — we’re doing great,” he said. “In today’s world, long-term money is private, and short-term money is public.”

cost savings

The purchase is part of the growing influence of private equity in the corporate world, said Radhakrishnan Gopalan, a professor of finance at Washington University. Publicly-traded CEOs complain about short-term pressures, and the growth in the number of private investment firms means the nonpublic market has become more liquid.

But Gopalan doubts that JAB will remain hands-off. Recouping the 20 percent premium they are offering from long-term growth “assumes that growth was not already priced-in,” he said. The big savings may come from moving their tax domicile to Europe, where corporate rates are lower.

“If they are hands-off, then I would say most of the value is going to come from tax savings,” Gopalan said.

And, as St. Louis is well aware, being swallowed by a larger group often means there’s opportunity for cost-savings by reducing redundant jobs.

“I’m sure there are synergies in procurement, synergies in back office systems,” Gopalan said. “They wouldn’t want to duplicate things.”

At least St. Louisans can take consolation that the chain will retain some local flavor. The restaurant chain that started in Kirkwood’s Greentree Shopping Center has no plans to take the St. Louis Bread Co. name off of the roughly 50 stores in the region.

Reuters contributed to this report.


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