Jollibee stock prices drop after LA-based Coffee Bean acquisition

STOCK prices for Philippine food giant Jollibee Foods Corp. (JFC) dropped 8 percent this week, following the announcement that it will acquire the Coffee Bean & Tea Leaf for $350 million.

Investors were unimpressed with Jollibee’s purchase of the Los Angeles-based coffee company as its stock price closed at P251 on Wednesday, July 24. The following day, shares were down 4.38 percent to P240, extending losses from the decline at the close of trading Wednesday.

JFC’s initial investment in Coffee Bean amounts to $100 million for an 80% stake through Jollibee Worldwide Pte Ltd, its Singapore-based subsidiary. The other 20% will be handled through its Vietnamese partner, Viet Thai International Joint Stock Co. It will also spend $250 million to complete the acquisition.

“I believe this is what investors fear. Jollibee is taking in a losing company,” noted Philstocks analyst Japhet Tantiangco.

He said investors are worried Coffee Bean would weigh on Jollibee’s earnings like the company’s purchase of Smashburger (which was for $210 million) did on first-quarter results.

After Jollibee consolidated burger chain Smashburger into its financial statements in 2018, its net income dropped by 14.7 percent to P1.5 billion in the 1st quarter of 2019.

Jollibee would have grown by 9 percent for the quarter, without Smashburger, according to analysts.

Coffee Bean has 1,189 outlets spread across the United States, Southeast Asia and the Middle East, as of December 2018.

“The acquisition of Coffee Bean & Tea Leaf will be Jollibee’s largest and most multinational so far with business presence in 27 countries,” said Jollibee Chairman Tony Tan Caktiong in a statement on Wednesday.

The purchase is poised to add 14% to Jollibee’s global system-wide sales and 36% international business contribution to worldwide sales, bringing the company “closer to its vision to be one of the top 5 restaurant companies in the world in terms of market capitalization,” Caktiong added.

The drop in the share price also caused Caktiong’s net worth to fall more than $200 million, bringing it to an estimated $3.3 billion, Forbes reported. The magazine ranked the Jollibee founder as the sixth richest person in the Philippines last year and No. 529 in its annual list of the world’s billionaires.

Regina Capital managing director Luis Limlingan also pointed out that Coffee Bean has been posting net losses in the past two years. It recorded losses of $21 million on revenues of $313 million in 2018 amid a revenue growth of only 4.1% year-on-year.

“Even though it usually takes around three years for Jollibee to turn its acquired businesses around, it does add challenge considering that the firm is still in the midst of rationalizing Smashburger’s operations,” Limlingan said.

Meanwhile, Philstocks research analyst Claire Alviar said the acquisition of CBTL delayed the planned initial public offering of Highlands Coffee, Jollibee’s other coffee business, which was supposed to happen in July.

“Let’s see what Jollibee can do to Coffee Bean if it can turn it to profits,” Alviar said.

JFC was named the largest Asian restaurant company in 2013. With 3,200 stores, including over 600 stores found in 13 countries overseas, its expansion still shows no sign of stopping.

In 2018, it acquired Mexican chain Tortas Frontera, which serves pulled pork, chorizo and beef sandwiches with sides of guacamole and cilantro salsa; Tim Ho Wan, which is famous for its barbecue pork buns; and U.S. chain Smashburger, which serves burgers in 351 stores across the U.S.

Jollibee also created joint ventures with Panda Express and Vietnamese noodle soup chain PHO24 to bring their popular menus to the Philippines.

Locally, JFC owns several well-loved brands like Greenwich, Chowking, Red Ribbon, ang Mang Inasal. It is also the official local franchisee for Burger King.