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Why Jack in the Box just devoured Del Taco for $575 million

It's act two for taco ownership for the folks at Jack in the Box (JACK).

After selling taco and burrito joint Qdoba to private equity firm Apollo Global Management in 2017 (Apollo is the parent company of Yahoo Finance), Jack in the Box announced this week it will buy fellow challenger brand Del Taco for $575 million.

Jack in the Box CEO Darin Harris — who joined the company in 2020 and has been laying the groundwork to hit 6,000 Jack locations over time from 2,200 today — tells Yahoo Finance Live the addition of Del Taco makes strong strategic sense.

"This deal creates a quick-service restaurant player with substantial scale. It reinforces our unit growth plans," Harris said. "We love the challenger mindset of the concept and the culture. There are similar guest profiles."

Harris sees the deal being immediately accretive to Jack in the Box.

Here are several key details on the deal:

  • All cash transaction.

  • Del Taco has 600 restaurants spanning 16 states.

  • $15 million in run-rate synergies seen by fiscal year-end 2023.

  • Deal is expected to close in the first quarter of 2022.

  • Del Taco seen posting $526 million in sales and $0.48 in earnings per share, per Yahoo Finance data.

Jack in the Box shares rallied back 5.6% on Tuesday after an initial drop on the deal, as investors had time to digest the merits of the transaction. Shares closed up 5.8% on Tuesday.

Wall Street has come out favorably on the transaction, reasoning that the addition of Del Taco will ramp up growth for Jack in the Box overall.

"We think the deal makes sense, with Del Taco representing a complementary brand that feels like a perfect match for Jack in the Box, and should be a positive catalyst to unlock accelerated growth and profitability for the system," said Jefferies restaurant analyst Alexander Slagle.

Slagle reiterated a Hold rating on Jack in the Box with a $105 price target.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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