In this segment from the Motley Fool Money radio show, Chris Hill, Jason Moser, and Simon Erickson share their enthusiasm around the acquisition of Panera Bread (NASDAQ:PNRA.DL), and not for the usual "let's find costs to cut" reasoning behind many big deals. This buyout is for a strong company with improving results, and as part of the JAB Holding portfolio, it should be able to accomplish its long-term goals away without the pressure of quarterly reports and Wall Street estimates.
A full transcript follows the video.
This video was recorded on April 7, 2017.
Chris Hill: Panera Bread has been bought by JAB Holding for $7.5 billion. If you're not familiar with JAB Holding, you probably know some of the companies they have already purchased, including Keurig Green Mountain, Krispy Kreme Donuts, Peet's Coffee, and Caribou Coffee. It is the biggest restaurant deal in U.S. history. It caps an incredible run for Panera Bread, Simon. And, of course, for the company's founder, Ron Shaich.
Simon Erickson: Yeah. You have to like this acquisition, Chris, because it's so different from most of them that we've seen in food and restaurants. We have companies go in and try to aggressively cut costs to boost profitability. Of course, in 3G Capital going after Anheuser-Busch, Burger King, we've gotten used to them saying, "How can I get the bottom line more profitable by taking as many costs out of the business as possible." I say this is different because Panera is actually investing very heavily in itself. We've seen the Panera 2.0 initiative from the last couple of years, where they're bringing iPads and kiosks into these restaurants. And it's really working, Chris. You have 25 million MyPanera rewards members, and that's driving half of the company's transactions. This is a formula that's going to work really well for the company.
Hill: Jason, you think back three, four years ago when Ron Shaich came out and issued the famous moshpit comment about how -- you love to see that from a CEO, saying -- "Our product isn't that great. The experience in the restaurants is not that great. We recognize that and we have a plan to fix it. But, it's not going to happen in one or two quarters."
Jason Moser: Yeah. The first step is recognizing you have a problem. I think that was really key to the actual turnaround here. And it did turn around. I had been tracking Panera sales and comps going all the way back to the first quarter of 2012. You can see this slow train wreck happening. They really did fall off a cliff until this point at the beginning of 2014, where we started to see some green shoots, some signs that maybe this was a strategy that was succeeding. I think, if you just go into a Panera today, you can see, in many cases, like Simon was mentioning with the kiosks, and the way throughput is working now, they're just much better restaurant experiences. And I think the food has always genuinely been pretty good. To me, this really is more about Ron Shaich wanting to be able to take this company to the next level, and wanting to do it, without having the scrutiny of the public markets. He said as much. He said, "I think, increasingly, in a public company model, it's very tough to focus on the long-term. I think companies like Panera have run so well when they have made the right long-term bets." I think he's right there. Wall Street is known for a lot of things. Patience is not one of them. This is going to give them opportunity to run the business without the scrutiny of the public markets.
Hill: It's going to be interesting to see, to what extent, if any, these restaurants change now that someone else is running the show. Shaich is going to be there for the foreseeable future. But it will be interesting to see what JAB Holding has in store for them.
Erickson: You have to think they're going to continue that technology platform that Panera has in their stores. 25% of the transactions are now placed digitally, and paid for digitally. It means the only association you have with a human being in the store is to pick up your food and say "Hey, thank you very much." We all know traffic is the Holy Grail for any restaurant out there. I think they have this figured out.
Moser: Yeah, companies like JAB are not buying this concept to lose money, they're going to try to eke out as much as they can. I think, over the next few years, it will be interesting to see if the quality of the food takes a dive or if the menus change substantially. I think Shaich will be in there for the foreseeable future, but he's going to be answering to someone else.
Hill: To wrap up on the stock, if you're a long-term shareholder of this business, you have been rewarded quite handsomely. Even if you're a short-term shareholder. In 2017 alone, this stock is up more than 50%. But, going back 20 years, this the best performing restaurant stock. Better than Starbucks, better than anyone else in the category. A return of more than 10,000% over 20 years. If that doesn't get you interested in long-term investment, I don't know what does.
Moser: I was talking to my dad a few days ago about this, because he got into Panera a number of years back. It really worked out well for him. I'd like to think that maybe I've settled the score with him and we're all square now from any trouble I caused growing up. But he's the ideal Foolish member. He can buy stocks and then just get on with life. I think that most people who did that with this stock are feeling pretty good about this deal.