Jack in the Box Inc. (JACK) is out today with some pretty big news, a Qdoba sale. Jack has today announced that it has entered into a definitive agreement to sell Qdoba Restaurant Corporation, a wholly owned subsidiary of the Jack, which operates and franchises more than 700 QDOBA MEXICAN EATS®restaurants, to certain funds managed by affiliates of Apollo Global Management, LLC (APO) (together with its consolidated subsidiaries, “Apollo”) (APOL) (NYSE: APO). Under the terms of the agreement, the Apollo funds will purchase Qdoba for approximately $305 million in cash, subject to customary closing conditions and adjustments.
This is a major development for the restaurant chain.
The transaction is expected to close by April 2018. The Company expects to use the net cash proceeds from the Qdoba sale after tax and transaction costs to retire outstanding debt under its term loan, as required by the terms of its credit facility.
Lenny Comma, chairman and chief executive officer of Jack in the Box Inc., said, “For the past several months, we have worked closely with our financial advisors and evaluated various strategic alternatives with respect to Qdoba, including a sale or spin-off, as well as opportunities to refranchise company restaurants. Following the completion of this robust process, our Board of Directors has determined that the Qdoba sale is the best alternative for enhancing shareholder value and is consistent with the Company’s desire to transition to a less capital-intensive business model.
“At the time the Company acquired Qdoba in 2003, it had 85 locations in 16 states, with $65 million in system-wide sales. Over the past 14 years, net units have grown at a compound annual growth rate of 16 percent. Today, Qdoba is the second largest fast-casual Mexican food brand in the U.S., with more than 700 locations in 47 states, the District of Columbia and Canada, and system-wide sales of more than $820 million in fiscal 2017.
“Keith Guilbault, Qdoba Brand President, has assembled a talented and experienced management team, and we wish them, the franchisees and all of the brand employees continued success.”
Apollo Senior Partner Lance Milken said, “We are extremely excited to be acquiring Qdoba and look forward to working with the management team, employees and franchisees to continue building the Qdoba brand. We are firmly committed to Qdoba’s continued growth as a leading fast-casual restaurant operator.”
Morgan Stanley & Co. LLC is serving as financial advisor and Gibson, Dunn & Crutcher LLP is serving as legal counsel to the Company in connection with this transaction. Apollo was advised by Morgan, Lewis & Bockius LLP, Paul, Weiss, Rifkind, Wharton & Garrison LLP, Deutsche Bank Securities Inc., and PJ Solomon.
The Company intends to provide guidance for fiscal 2018 in connection with its presentation at the ICR Conference on January 9, 2018, which will incorporate the Qdoba sale.
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