Krispy Kreme up on possible McDonald's interest

Krispy Kreme up on possible McDonald's interest
Tags: Burger/Steak/BBQ, Coffee/Bakery/Donut, Food & Beverage, Franchising & Growth
September 23, 2004

LOS ANGELES, Sept 24 (Reuters) - Shares of Krispy Kreme Doughnuts Inc. (KKD.N: Quote, Profile, Research) rose 2.5 percent on Friday after an analyst report said McDonald's Corp. (MCD.N: Quote, Profile, Research) could be interested in buying the struggling chain. J.P. Morgan analyst John Ivankoe said in a note to clients on Friday that both McDonald's and Arby's parent Triarc Cos. Inc. (TRY.N: Quote, Profile, Research) were both "likely" interested in Krispy Kreme. Neither McDonald's nor Triarc could immediately be reached for comment on the report.

While the No. 1 hamburger chain may be eyeing Krispy Kreme, Ivankoe said its strategy of focusing on its McDonald's restaurants and de-emphasizing its "sister brands" like Boston Market and Chipotle was "unfavorable for the likelihood of a purchase." Another analyst, Doug Christopher of Crowell Weedon & Co. said Ivankoe's report was "interesting" and added that Krispy Kreme could be a good fit for McDonald's. "I don't know if it's a possibility," Christopher said. "But McDonald's is an assembly line and I think they could do some pretty good stuff there." Krispy Kreme officials were not immediately available for comment. Known for its hot glazed doughnuts made fresh at its namesake stores, Krispy Kreme is trying to right itself in the face of slowing sales in its wholesale business. The chain, which has blamed the low-carbohydrate diet trend for weakening sales and issued its first ever profit warning earlier this year, also faces a regulatory investigation into its accounting practices. McDonald's is currently testing Krispy Kreme doughnuts at 13 units in Canada, Ivankoe said.

Krispy Kreme shares rose 27 cents, or 2.3 percent, to close at $12.20 Friday on the New York Stock Exchange. The stock hit a high of $12.29 earlier in the session. McDonald's' stock, meanwhile, rose 1.7 percent to $27.60 and Triarc shares climbed 1.3 percent to $11.38.