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THL Partners to acquire CKE Restaurants
February 25, 2010
Carl's Jr. and Hardee's have a new owner. Thomas H. Lee Partners, a private-equity firm that was part of a buyout group in a takeover of Dunkin' Brands in 2006, has entered into a definitive merger agreement with CKE Restaurants Inc. THL has agreed to purchase the company for approximately $928 million, which includes assuming approximately $309 million of CKE's debt.
Under the terms of the agreement, CKE stockholders will receive $11.05 in cash for each share of CKE common stock they hold. That amount represents a 24 percent premium over the stock's closing price of $8.91 on Thursday and a 29 percent premium to the company's volume weighted average closing share price of approximately $8.60 during the 30 trading days ended Feb. 25.
Andrew F. Puzder, CEO of CKE Restaurants, said in a statement:
We believe this transaction provides excellent value to our shareholders and represents an exciting opportunity to continue the growth and development of CKE Restaurants in partnership with THL. THL's proven history of success as an investor and value-added partner to its portfolio companies, coupled with its deep financial expertise and experience in the consumer sector, will also benefit all of our stakeholders, including our franchisees and our employees.
CKE Restaurants has worked to improve margins and profitability over the last year as its brands suffered from declining same-store sales, particularly at California-based Carl's Jr. In December, the company reported third quarter net income was up 14.8 percent at $6.2 million, compared to $5.4 million in the same quarter last year. Year-to-date net income was down 4.4 percent at $32.8 million. Blended same-store sales for that quarter were down 3.7 percent.
RJ Hottovy, an equity analyst with Morningstar, said that the transaction was a smart move for CKE Restaurants.
"The takeover price obviously represents a nice premium compared to yesterday's closing price, so I think its attractive from a shareholder perspective," he said.
For the quick-service burger category, the buyout signals expansion plans for the brands based on THL's experience with growth companies. Hottovy said he expects the company likely will "ramp up CKE's current growth inititiavies."
Domestically, Carl's Jr. is particularly focused on expansion in Texas, which had been a more stable market. Last month, the company announced a multiunit agreement for 31 stores in the state. Over the past year, Carl's Jr. has seen significant expansion in Texas, which has 34 Carl's Jr. restaurants open in Texas (27 franchised, seven company owned), with an additional 352 units planned over the next 10 years.
Internationally, the company announced earlier this month that the first Carl's Jr. will open in Vietnam this spring. CKE Restaurants franchises 340 international restaurants between both its Carl's Jr. and Hardee's brands. The company has said it has strategic development plans to double its international presence within the next five years.
THL: Experience with growth companies
THL is one of the oldest and most successful private equity investment firms in the United States. Since its establishment in 1974, THL has been the preeminent growth-buyout firm, raising approximately $22 billion of equity capital, investing in more than 100 businesses with an aggregate purchase price of more than $125 billion, completing over 200 add-on transactions and generating superior returns for its investors.
THL focuses its high value-added strategy on growth businesses, partnering with the best managers in an industry to build great companies through strong organic growth and targeted add-on acquisitions. Notable transactions sponsored by THL in addition to Dunkin' Brands include Aramark, Michael Foods, Ceridian, Experian, Fidelity National Information Services, HomeSide Lending, Houghton Mifflin, The Nielsen Co., ProSiebenSat.1, Snapple, Warner Chilcott, Warner Music Group and West Corp.
Todd Abbrecht, managing director of THL Partners, said, "THL is pleased to partner with CKE's seasoned management team to continue building on the company's powerful brands and strong position in the marketplace. We are committed to making this great company even better, and to working together with the entire organization to provide an even stronger foundation for value creation, expansion and profitable growth."
CKE to seek additional bids
Under the merger agreement, CKE Restaurants will actively solicit superior bids from third parties for a period of 40 days through April 6. CKE Restaurants does not intend to disclose developments with respect to this solicitation process unless and until its board of directors has made a decision regarding any superior proposals that may be made.
The transaction is expected to close in the second quarter of 2010, subject to approval by CKE shareholders, regulatory approval and other customary closing conditions.
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