Arby's Gets Into Wings; SodaStream Gets Into Wines

In this Market Foolery podcast, host Chris Hill is joined by Hidden Gems' Abi Malin to consider two somewhat surprising stories. First, Buffalo Wild Wings' (BWLD) days as a public company are coming to a close, with privately held Arby's Restaurant Group snapping it up for $2.4 billion, or $157 a share. And SodaStream (SODA) has announced a whole new beverage category users can make with its machines: sparkling wine. It'll only be available in Germany at first, but the concept is intriguing.

A full transcript follows the video.

This video was recorded on Nov. 28, 2017.

Chris Hill: It's Tuesday, Nov. 28. Welcome to Market Foolery. I'm Chris Hill. Joining me in studio today, from Hidden Gems, Abi Malin. Thanks for being here!

Abi Malin: Thanks for having me!

Hill: How was your Thanksgiving?

Malin: It was good. How was yours?

Hill: Nice and smooth. Delicious food, smooth travel. That's --

Malin: All you can ask for.

Hill: -- mainly what I'm looking for. Hey, the news fairy showed up, which is always great to see when we're in the last throes of earning season. We'll get to the beverage industry. Exciting developments in the beverage industry. But we have to start with the news of the day, and that is that Roark Capital Group, which is a private equity firm that appears to specialize in restaurants. Roark Capital Group is buying Buffalo Wild Wings. The price tag is $2.4 billion. That works out to $157 a share, a number we will come back to in a moment. What did you think when you saw the deal?

Malin: I think it's exciting. We've been talking about this one for a little bit now. There's been rumors of deals off and on. I think this is something that's been a long time coming.

Hill: You were showing me the Roark Capital Group -- private equity firms, because they're private, they will share as much or as little of their business as they want to. And there's some private equity firms that, you go to their website and there's basically a logo and an email address and that's it. Roark Capital Group, they have the people who work there, they have their portfolio, and this appears to be a go-to -- I mean, this is their specialty, right? Restaurants?

Malin: Yeah, they definitely have quite a few restaurants in there. They own Arby's, Auntie Anne's, Carvel, Cinnabon, Carl's Jr., Jimmy John's, quite a few in there.

Hill: Quite a few. Roark isn't a public company, so we don't know how the stock is doing, but the reports, certainly when it comes to Arby's and when you get into trade publications like QSR and that sort of thing, it really does seem like Arby's is doing pretty well, it seems like Jimmy John's is growing, and Cinnabon, I mean, if you don't like Cinnabon you can go ahead and leave the country right now.

Malin: Exactly.

Hill: So, for Buffalo Wild Wings, do you have a sense of what Roark plans to do at this point? Are they looking to expand? Have they shared anything other than "We're buying Buffalo Wild Wings, and this is the price that we're paying"?

Malin: I haven't read anything specific on what they're going to do, but analysts have made some comments that there's a little bit of low-hanging fruit there for them to grab at. So, just continuing to improve financial metrics, get the operations up to standards, improve food quality, things like that. That should be relatively easy for someone as experienced as they are.

Hill: Do you think this is a bad time -- I know restaurants have struggled over the past year or so, and it's something that we've talked about a bunch on this podcast. But you think about, over the past year or so, where Panera Bread gets taken private, I think it was just last month, Ruby Tuesday was taken private, and Krispy Kreme recently went private. But in the case of Ruby Tuesday and Panera Bread, you have two restaurants that are in the same line of work. One of them is struggling, in the case of Ruby Tuesday, so maybe that wasn't as big of a surprise. But Panera Bread was doing well. And I'm wondering if, now that we add Buffalo Wild Wings to the list, if one of the takeaways for investors should be, now is not the time to be invested in restaurants.

Malin: I think generally, when you look at the market right now, things are pretty expensive. We've been talking about that for a while. I wouldn't necessarily take private equity interest as a sign that you shouldn't be investing. If anything, it's probably a good time. Private equity usually goes, with these very aggressive deals, they're going to go after the profits; they're going to go where they see that they can actively make a change. And I think there's been a little bit of pessimism around the restaurant industry, especially in a frothy market, so it's probably a good time to actually be digging into this space.

Hill: Shares of Wendy's (WEN 1.32%), which is publicly traded, are up today. Wendy's somehow has part of this deal as well? How does that work?

Malin: Roark Capital Group bought Arby's from Wendy's in 2011 for about $430 million. Wendy's retained 18.5% ownership of Arby's, which was valued at about $326 million as of Q3. But following this BWLD acquisition, BWLD will become a unit of Roark's Arby's unit. So Wendy's is now gaining that stake, so the Wendy's stake in Arby's, which now includes BWLD, will be about $757 million.

Hill: Nice work for Wendy's there.

Malin: Good day for Wendy's.

Hill: Absolutely. Before we move on, I have to close the books, because it sounds like we're going to be closing the books on Buffalo Wild Wings as a public company. Have to close the books with the little bit of history. The idea that Buffalo Wild Wings would go private has been out there for a while, at least as a possibility. The fact that it's Roark taking them private, and not Marcato Capital Management, may surprise a few people, because Marcato Capital Management, and Mick McGuire, their leader, came out in August of 2016 and ripped Buffalo Wild Wings, and in particular Sally Smith, the longtime CEO. Because at the time, Marcato had a little bit more than a 5% stake, and they just ripped Sally Smith.

It reminds me of the old saying -- do a little bit more than everyone expects, and assume everyone will expect more. Sally Smith and her team did such a good job growing the business and rewarding shareholders year after year after year for Buffalo Wild Wings that I think, certainly, some people at Marcato took that for granted because they hit a slight rough patch. They just went to town. And at the time of this presentation that Mick McGuire did, the stock was at $167 per share, and Marcato was part of the ownership group that signed off on Roark at $157 a share. Which, the last time I checked, is lower than $167.

Malin: It is. Yeah. I mean, it might have something to do with the fact that Roark Capital previously invested in Wingstop, which is a similar concept to BWLD. It could be that Marcato got less interested; it could be maybe there was some tension there with that leadership change. I think it could be a bunch of things.

Hill: It could also be that Marcato decided to essentially push Sally Smith out, and then they realized, you know what? Running a publicly traded restaurant is --

Malin: Really hard.

Hill: -- really, really hard. And I say this as someone who was never invested in Buffalo Wild Wings. I just look at it what a great job Smith did running that company, and think that she was unfairly raked over the coals on that one. Anyway, let's move on.

Also, I should mention, yesterday was Cyber Monday. Today is Giving Tuesday. The Motley Fool is doing its annual philanthropy drive. This year, we're partnering with a group called All Hands and Hearts. We've talked on this show about the business impact of the recent disasters in Florida and Texas and Puerto Rico and the Caribbean. All Hands and Hearts deployed skilled and unskilled volunteers in disaster areas to rebuild homes, rebuild schools, help with community infrastructure. That's why we decided to partner with them this year. You can go to give.fool.com to learn more. Any donation you can make can really make a world of difference. Check it out at give.fool.com.

Exciting news from the beverage industry. SodaStream has unveiled a new drink mix called Sparkling Gold, and it literally turns water into wine.

Malin: This is exciting news.

Hill: This is. This is only available in Germany at the moment -- do I have that right?

Malin: Yes, only available in Germany.

Hill: What do you think about this? Do you have a SodaStream device?

Malin: I do not have a SodaStream device. I think it's interesting. This was a longtime Fool rec, very long, way back when. We had high hopes for it. We had high projections. It didn't exactly pan out. I think this could be a potential new market for them, and something interesting, a new revive.

Hill: I have a SodaStream device in my house. I don't drink sparkling water, but several people in my home do. We don't use it for any mixes or anything like that; it's just the carbonated water. So, Sparkling Gold, I'm reading directly from the announcement from the company, Sparkling Gold contains 10% alcohol by volume. And this is the key point, ladies and gentlemen, when prepared using the recommended mixing ratio of one part Sparkling Gold concentrate to five parts sparkling water. Which of course means, if you want a little bit more kick to your sparkling wine, you just reduce that amount of sparkling water that you're putting in there.

Is this going to come to the United States? I've never been more interested in SodaStream as a business than I am right now, because if this works...

Malin: It has a huge potential.

Hill: It has a huge potential.

Malin: I think it'll be interesting. I don't particularly follow this company, so I'm not sure what their strategic initiative with starting in Germany was or why. But I agree. I think it could be big if it's good.

Hill: I know your colleague at Hidden Gems, Seth Jayson, he'll do a sparkling wine now and then if he's in a celebratory mood. Do you ever?

Malin: I drink champagne, but not sparkling wine.

Hill: I don't know; I think that's really bears watching. In terms of the stock, shares of SodaStream have almost doubled over the past year. And any time we talk about restaurants that serve alcohol, that's a high-margin business.

Malin: Definitely.

Hill: If this works at all, I think this could be huge. And one of the things I was thinking about when I was reading through this story was, a few years ago, I got the chance to interview Nassim Taleb, who wrote The Black Swan. And he was here, in the office. I don't do many face-to-face interviews for Motley Fool Money like that. And I was doing some last-minute prep with Taleb, and I basically picked up two bits of information about his personality and his non-literary life, and one is that he appears to be a pretty serious guy and does not hold the media in high regard, so that made me a little nervous. And the other is, he's something of a wine connoisseur.

So I sit down with him, and he wasn't mean or rude or anything like that, but he was very serious the whole interview. So the last question I asked him was about wine. And up until that moment, everything had been about the book, and his views on the economy and that sort of thing, his latest book at the time. And the last question I asked him was, "This weekend, I'm going to a friend's house for dinner. I don't know what he's going to be serving at this dinner party, but I'd like to bring a bottle of wine. What do you recommend?" And he just stared at me for a second, and a couple of seconds, I thought, "Oh, God, I have horribly played."

Malin: Missed the mark.

Hill: "I have totally missed the mark and he might take a swing at me." And then he got very animated and broke into this big smile, and he's basically like, "OK, here's what you're going to do!" And his main point was, never spend more than $15 for a bottle of wine, ever, because all of these tests that have been done about really expensive wine compared to your basic wines and experts that can't tell the difference, and that's apparently part of the research that informed what SodaStream has done. So for anyone who's a wine snob thinking, "Why would I ever drink this?" I don't know.

Malin: Yeah. If you read down on some of these analyst feedback or commenters, I don't even know if they're analysts, but people are pushing back that the company was making this champagne celebratory drink and comparing it in taste tests to that. But it's made from Riesling grapes, so it's actually more of a sparkling white wine. So I don't know that this is necessarily going to attract that group of people. But it's interesting to watch.

Hill: Every once in a while, I make a request of our dozens of listeners, and this time specifically --

Malin: Someone in Germany needs to try this.

Hill: We need someone in Germany to try this out. We need someone. Because I think this could work, but I think you also don't want to be in a position with this where you are preparing it in front of your guests. That's going to be a little bit of a buzzkill. I think you want to prepare it, put it in a different bottle, and then serve it from a decanter of some sort.

Malin: Put your SodaStream wine in a decanter and then serve it?

Hill: Or something. I don't know. Clearly, I haven't thought this through entirely. But would you agree with me, at least for my presentation standpoint --

Malin: Making it in a SodaStream is a little declasse? [laughs] 

Hill: [laughs] Yeah, I don't think that's the move.

A couple of housekeeping notes before we wrap up. We do have a bonus episode of Market Foolery coming later this week. I think that's going to be published on Friday. As before, this will be a non-business news episode, so please feel free to skip it. D.C.-area listeners, exciting news. Dec. 8, which is a Friday, we are going to be taping Motley Fool Money outside of the studio. We're going to be out in D.C., exact location to be determined. But I think in the next day or two, we'll have the details wrapped up. But we would love to have listeners come up, because it's going to be at of place where food and adult beverages are served. So stay tuned on that. Friday, Dec. 8, Motley Fool Money taping in Washington, D.C. And, tonight, on CBS at 8 o'clock Eastern, it's the annual showing on CBS of Rudolph the Red-Nosed Reindeer. You're not on Twitter.

Malin: I am not on Twitter.

Hill: So, you have no danger of --

Malin: I'm going to miss your genius.

Hill: It's not going to be genius, but it is the one thing that I live-tweet every year, is Rudolph the Red-Nosed Reindeer, because I think it's unintentionally turned into a hilarious holiday special. So if you follow me on Twitter, it might be a good time to unfollow me, because tonight I'm just going to be --

Malin: Or a good time to join Twitter.

Hill: Yeah. But really, historically -- because I've done this for the last few years -- historically, this is the night that I lose some followers. Which is fine. Which is totally fine. I was going to say, you can follow Abi Malin on Twitter, but you can't.

Malin: You can't.

Hill: Because she's not on Twitter. Are you anywhere on social media that people can follow you? Or do they have to go to fool.com and hope that one of your articles shows up? 

Malin: See me on fool.com.

Hill: Exactly. Or, if you subscribe to Hidden Gems, then you're already getting your weekly dose of the genius of Abi Malin. Thanks for being here!

Malin: Thank you for having me!

Hill: As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of Market Foolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. We'll see you tomorrow!