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Why Sonic Corporation Stock Surged Today

By Jeremy Bowman – Updated Sep 25, 2018 at 12:50PM

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Shares of the fast-food drive-in chain spiked on news of a buyout deal.

What happened

Shares of Sonic Corporation (SONC) jumped today on news that the drive-in fast-food chain would be acquired by Inspire Brands, the parent of chains including Arby's, Buffalo Wild Wings, and Rusty Taco. Inspire said it would pay $43.50 a share for Sonic, or $1.57 billion, in a deal valued at $2.3 billion including Sonic's debt. Shares of the burger slinger were up 18.4% to $43.35 as of 11:55 a.m. EDT on Tuesday.

A Sonic carhop brings an order to a customer.

Image source: Sonic.

So what

That the stock is trading just a few cents below the buyout price indicates a high degree of confidence among investors that the deal, which is still subject to shareholder approval, will go through as negotiated. The buyout price represents a 19% premium to Sonic's closing price on Monday and a 21% premium to its 30-day moving average.

Paul Brown, CEO of Inspire Brands, said: "Sonic is a highly differentiated brand and is an ideal fit for the Inspire family. We're excited to build on Sonic's momentum as we leverage our combined expertise and capabilities to better serve guests, further support team members and franchisees, and drive long-term growth."

Sonic CEO Cliff Hudson said, "This value-maximizing transaction validates the actions we have taken over the last year to grow traffic and improve sales while delivering differentiated offerings and superior guest service."

Now what

Sonic shares reached an all-time high on the news after the stock had traded sideways over the last three years. Results in recent quarters have been underwhelming as the company forecast same-store sales growth between -1% and flat for the fiscal year ended Aug. 31 and adjusted earnings-per-share growth of just 3% to 6% excluding the impact of tax reform. Given that slow growth, the acquisition seems like the best outcome for Sonic shareholders.

Despite the recent challenges, Inspire clearly sees potential in Sonic, which offers a unique format in the fast-food world. And Inspire, which is privately held, has a strong track record after returning Arby's to growth thanks to a brand revamp.

The deal is expected to close by the end of the year.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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