In this segment of the Market Foolery podcast, host Mac Greer, Total Income's Ron Gross, and Million Dollar Portfolio's Jason Moser reflect on a fast-food divorce: Jack in the Box (JACK 2.33%) has decided to get out of fast-casual Mexican, and Apollo Global (APO) was there to help, offering $305 million for the Qdoba chain. Is this a smart move for Jack? Did the buyer overpay for this value meal?
A full transcript follows the video.
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This video was recorded on Dec. 19, 2017.
Mac Greer: Guys, Jack in the Box selling Qdoba, the fast-casual Mexican chain. They're selling Qdoba to the investment firm Apollo Global for $305 million. Ron, shares of Jack in the Box over the last two and five years have beaten the market and done well. The last year ...
Ron Gross: Not so much.
Greer: Qdoba not doing so well. Do you like this deal?
Gross: I like the deal for Jack. I think it's great to get rid of it. I'm surprised that Apollo -- I guess they would want it, but $305 million is a good deal for Jack, I think. They bought it back in 2003 for $45 million. They've certainly expanded it from 85 locations up to 700. It was working for a while, right up until it kind of stopped working and the concept kind of soured. I think. Great for them to focus on their namesake brand, Jack in the Box, which, by the way, are primarily franchised, where Qdoba is much less franchised. So I think it's a better business model to focus on the franchise Jack in the Box restaurants, get rid of Qdoba, take the cash.
Jason Moser: Yeah, I think it just goes to speak to how difficult the restaurant business really is. It seems like a lot of Jack in the Box's success was because of strong performance from Qdoba over the past few years. It's competitive, obviously. There's a little concept out there called Chipotle that seems to occupy some of the space. And that's a much bigger concept. I think you said Qdoba has around 700 stores, Chipotle has somewhere around 2,300. And they're looking for a new CEO that could very well light a fire under that business. So, I think it's probably as good a time as any for them to unload it.