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Arby's, Buffalo Wild Wings Parent to Buy Sonic for $2.3 Billion

Craig Giammona, Gerald Len Porter
Customers dine at a Sonic Corp. drive-in fast food restaurant in Knoxville, Tennessee.

The restaurant industry has to contend with a new giant.

The parent of Arby’s, Inspire Brands Inc., announced on Tuesday that it had agreed to acquire Sonic Corp. in a deal valued at about $2.3 billion, adding more than 3,600 locations of the burger chain to a portfolio that also includes Buffalo Wild Wings and Rusty Taco. The deal would give Inspire, controlled by private equity firm Roark Capital, a total of about 8,200 locations and make it one of the 10 largest restaurant companies in the U.S. by that measure.

That scale could help Sonic compete in an industry where it’s been squeezed by tough competition from bigger rivals including McDonald’s Corp., Burger King and Yum! Brands Inc., which operates the KFC, Taco Bell and Pizza Hut chains. The larger companies have the advantage of using their scale to get supplies at a better price, said Michael Halen, an analyst at Bloomberg Intelligence.

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“The value wars are still going strong right now,” said Halen, referring to Inspire’s entry into the battle for burger diners. “McDonald’s and Burger King are really the source of Sonic’s troubles.”

Inspire will continue to operate Sonic as an independent brand, according to a statement Tuesday. The deal, unanimously approved by Sonic’s board, represents a 19 percent per-share premium to Sonic’s closing price on Monday, the company said. Inspire will pay $1.57 billion for Sonic’s equity and assume about $700 million of debt, according to Bloomberg calculations.

Sonic shares surged as much as 23 percent on Tuesday to $44.87, above the per-share offer of $43.50. The stock had jumped about 33 percent this year through Monday’s close.

The deal would significantly expand Inspire’s U.S. footprint, and with more than 8,000 locations there it would be larger than industry stalwart Wendy’s. Still, the company will need to go on the hunt for acquisitions if it wants to pass some of its other competitors. As of last year, Yum! Brands had more than 18,000 domestic locations, according to industry researcher Technomic. Burger King is controlled by Restaurant Brands International Inc., which also operates Tim Hortons and Popeyes. Overall, the company has roughly 10,100 U.S. stores.

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Sonic is the latest struggling chain to be acquired by Inspire, which is credited with mounting a turnaround at sandwich chain Arby’s. Sonic, caught in the competition to offer the lowest prices, has posted declining same-store sales for eight consecutive quarters. The chain relies on cheap drinks, catchy commercials and promotions to lure customers, and it’s struggled to stand out in a crowded restaurant space.

‘Good Price’

Inspire was co-founded by Paul Brown of Arby’s and Neal Aronson, who started Roark Capital Group. Last year, Arby’s -- which is majority owned by Roark -- agreed to buy restaurant chain Buffalo Wild Wings for about $2.4 billion, adding it to the private equity firm’s stable of eateries. In August, Wendy’s Co. agreed to sell its stake in Inspire, marking another ownership change in a rapidly shifting restaurant industry.

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Andrew Boord, a portfolio manager at Fenimore Asset Management Inc., said “it looks like a good price” for the Sonic acquisition. Fenimore’s FAM Small Cap Fund held about 235,000 Sonic shares as of June 30.

“Sonic has gone through a big turnaround,” Boord said. “Things are looking better.”

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