Restaurant Brands International (TSX: QSR), the owner of Burger King and Tim Hortons, has agreed to acquire Popeyes Louisiana Kitchen (NASDAQ: PLKI) for $1.8 billion, or $79 per share in cash, representing a 27% premium based on the company’s 30-day weighted average price as of February 10.
The key to this deal is the potential of international growth for the Popeyes brand, with the company slated to go toe-to-toe with KFC’s 16,400 locations outside of the US. RBI will look to increase its total revenue from roughly $4.2 billion last year on 2.5% and 2.3% sales growth for Tim Hortons and Burger King, respectively.
The acquisition diversifies RBI’s fast food offerings, adding Popeyes' menu of fried chicken to a portfolio that already includes Burger King’s lineup of sandwiches and Tim Hortons’ doughnuts and coffee. Brazil-based 3G Capital's bundling of these iconic brands in 2014 for $11 billion resulted in the creation of RBI and, as the driving force behind the combined company, 3G has lived up to its aggressive, cost-cutting reputation in the management of selling, general and administrative expenses.
Now, Popeyes's 2,600 locations and their 2016 expected SG&A of $92 million will be subject to the same cost-cutting measures. For example, the SG&A costs at Tim Hortons dropped from $175 million in 2014 to $79 million in 2016, according to Morningstar analyst RJ Hottov.
The transaction is expected to close by early April 2017, with Popeyes remaining under independent management in the US as it increases international scale with help from 3G. RBI’s shares jumped 7% on the news Tuesday, with Popeyes popping 19% to close at $78.73 per share.
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