Prof. Gopalan on sale of Panera

As a European-based conglomerate prepares to buy U.S. restaurant chain Panera Bread, a finance professor at Washington University in St. Louis says the move points to the growth of the private equity industry as a viable alternative to the public market.

Panera is selling when it is doing fabulously well under current management. In terms of why now, I cannot think of any reason other than Chief Executive and founder Ron Shaich wanting to exit and possibly do something else.

—Radhakrishnan Gopalan, professor of finance

In the deal, announced late April 4, investment firm JAB is set to pay $7.5 billion, including debt, for the bakery-cafe chain. JAB owns other coffee brands, including Peet’s and Keurig. JAB also plans to turn the publically-traded Panera into a private company. Panera, headquartered in the suburban St. Louis town of Sunset Hills, Mo., has 2,000 locations throughout the United States and Canada.

“As far as the buyer is concerned, while there are potential synergies with the existing portfolio of JAB such as Krispy Kreme and even Keurig, one cannot but imagine the timing as not being all that great, as Panera’s stock has performed very well lately,” Gopalan said. “This also is reflected in a premium that is on the lower end of the typical 20 percent-30 percent that one observes in such deals.”

Panera joins a list of St. Louis companies bought out in recent years, including Solutia, Savvis, Sigma-Aldrich, Ralcorp, Isle of Capri and Monsanto.

“Not only is St Louis losing another firm, but another public firm is going private. This increases the urgency for everyone concerned to look at the costs and benefits of being a public company and, if possible, increase its attractiveness by reducing the regulatory burden.

“The final piece of the puzzle is that the acquirer is European, and so one cannot but imagine the tax differential had a role to play as the corporate tax rate is much lower in Europe as compared to the U.S.”

Gopalan is available for interviews and may be reached at gopalan@wustl.edu

Guest Blogger: Erika Ebsworth-Goold, The Source