Jack In The Box, Sonic Shares Rise On CKE Buyout Deal
26 minutes ago - Dow Jones News
(Updates with no comment from companies, further analyst comment, share prices)
By Kerry Grace Benn Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Shares of Jack in the Box Inc. (JACK) and Sonic Corp. (SONC) rose Friday on speculation they could be takeover targets after rival restaurant operator CKE Restaurants Inc. (CKR) agreed to a $619 million buyout by private-equity firm Thomas H. Lee Partners. Buyout firms have historically liked the franchise model of fast-food restaurants, as they provide a steady stream of cash in the form of royalties and fees collected from franchise operators. The deal for CKE, which has six weeks to find a higher offer, comes as the parent of the Carl's Jr. and Hardee's fast-food chains has struggled, especially at Carl's Jr. In the four weeks ended Jan. 25, same-store sales at Carl's Jr. slid 9%. CKE has been averse to the deep discounting that some rivals have been doing to prevent sales declines. Thomas H. Lee has agreed to pay $11.05 a share, a 24% premium to Thursday's closing price, and assume $309 million of debt. CKE shares climbed 25% to $11.13 in recent trading, topping the offer price and increasing speculation the company may attract a higher bid. Meanwhile, Jack in the Box's shares were recently up 4.6% to $21.26 and are up 8.1% so far this year. Sonic's shares rose 1.9% to $8.50 but are off 16% year-to-date. Neither Jack in the Box nor Sonic could immediately be reached for comment. Stifel Nicolaus analyst Steve West said it's speculative, but there's definitely value in the other companies, particularly Jack in the Box because of its low debt and the fact that it is refranchising. Looking at the multiple CKE got, and applying that to Jack in the Box, there's definitely some upside in the shares, he said. Jack in the Box is very comparable to CKE, as they're both regional premium hamburger chains, he said, and actually has more leverage to unleash for a private equity firm, since the company is refranchising and doesn't have nearly as much debt as CKE. CKE has already refranchised, he said. There are a lot of things a private-equity company could do with Jack in the Box that it couldn't with Sonic or CKE, he said. He added he doesn't think Sonic fits the profile as well--it's undervalued, but that's because its fundamentals haven't been good, and Jack in the Box is much more similar to CKE than Sonic is. At Jack in the Box, cost-cutting has helped blunt the effects of the downturn, but rising unemployment continues to eat into sales. The fast-food chain said last week that its fiscal first-quarter earnings fell 15%, but the company saw signs of promise from its Qdoba Mexican chain in the period ended Jan. 17. Still, it cut its earnings guidance for the year by a nickel per share and said same-store sales at the namesake chain will fall more than previously expected. Last month, Sonic also said its fiscal first quarter took a hit from unemployment and an intense promotional environment, which helped send its profit down 13% for the period ended Nov. 30. As such, the drive-in chain chilled its expectations for the year, though it projected some improvement in the second half. The company has struggled to find the right mix on prices, and analysts have expressed concern about weak same-store sales trends and store-level margins.
-By Kerry Grace Benn, Dow Jones Newswires; 212-416-2353; firstname.lastname@example.org