Panera Bread Has Takevoer Appeal, But Will Cost a Lot of Dough

(Bloomberg Gadfly) -- Panera Bread Co. is one expensive takeover target. Is it worth the dough?

Shares of the bakery-cafe chain spiked 7.9 percent on Monday on a Bloomberg News report that it's exploring a sale after receiving interest. Those gains pushed Panera's stock through what was already a record level and left the restaurant company valued at about 17 times its Ebitda in the past year. 

Slapping a 30 percent premium onto the unaffected share price would push the multiple past 19 times. That's not unheard of in the restaurant industry. JAB Holding Co. paid about that much for Krispy Kreme Doughnuts last year, while Burger King parent Restaurant Brands International Inc. shelled out a whopping 21 times Ebitda this year for Popeyes Louisiana Kitchen Inc. And Panera does have a respectable growth rate, with at least 17 straight years of annual same-store sales gains. Arguably, its healthier bent may be more attractive than fried chicken and doughnuts.

But it's also worth wondering whether such a pricey deal is worth it for speculated potential acquirers such as Starbucks Corp., JAB or Domino's Pizza Inc. Mixing and matching food categories doesn't always work. The combination of Burger King with coffee-and-doughnut chain Tim Hortons in 2014 has been a "meh" of a deal, with limited signs of a promised international sales bump. When asked about a Panera deal, a Domino's spokesman said the company has  “a lot more opportunity for growth in pizza.”  That's probably a smart idea given how well it's doing.

Starbucks is trying to draw more of a lunch crowd and William Blair & Co. analyst Sharon Zackfia says the coffee chain could extract synergies by tapping into Panera's digital prowess and by using its dough facilities to provide pastries for its stores. Maybe … but Starbucks's own track record argues for caution.

The coffee giant shut down all the La Boulange cafes associated with its $100 million purchase of Bay Bread. Customer complaints about new pastries forced the company to bring back some old favorites. And while the prospect of opening tea bars and adding retail stores was one of the selling points of the company's roughly $620 million acquisition of Teavana in 2012, it's converting three tea bars in New York into Starbucks stores and closing down a Beverly Hills location. The total number of Teavana locations the company operates declined in the fiscal year ended Oct. 2, as did the store count for the Evolution Fresh brand Starbucks purchased in 2011, according to filings.  

There's no such thing as a free lunch, but there is such a thing as indigestion.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

1. Panera is also more dependent on franchises, which could create integration complications. 

2. For the record, Starbucks declined to comment on a potential deal and said it's excited about the launch of its new fresh-food menu Mercato, which includes salads and sandwiches. 

To contact the author of this story: Brooke Sutherland in New York at bsutherland7@bloomberg.net.

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net.