Jollibee stocks fall after Coffee Bean buyout plan

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Metro Manila (CNN Philippines, July 25) — Jollibee Foods Corp. (JFC) has revealed it plans to acquire American coffee chain The Coffee Bean & Tea Leaf (CBTL), but investors do not seem to find the news palatable.

On Wednesday, the local fast food giant announced that it was set to acquire the global coffee franchise, marking its largest acquisition outside the Philippines.

The deal will be made through its Singapore-based subsidiary Jollibee Worldwide Pte. Ltd. that owns Java Ventures, LLC. in the United States, starting with a $100 million investment. The remainder will be raised through a share sale, with the entire deal said to be worth $350 million (P18 billion).

Coffee Bean, owned by International Coffee & Tea, LLC, is based in Los Angeles, California, but operates 1,189 outlets across 27 countries, with 139 located in the Philippines. It will be the second-largest business in the JFC group after its flagship brand, Jollibee.

Once completed, Coffee Bean is estimated to add 14 percent to JFC's global systemwide sales and 26 percent to its store network. It will likewise "bring JFC closer to its vision to be one of the top 5 restaurant companies in the world in terms of market capitalization," the company said in its disclosure.

Jollibee has been on expansion mode over the past years. Currently, it owns Highlands Coffee which is focused on Vietnam.

But the deal wasn't something investors could swallow, at least this early. JFC shares plunged on Wednesday by 8 percent to ₱251 each by closing from ₱272.80 the previous day.

Rens Cruz, senior equity analyst at Regina Capital, said it was likely a reaction to CBTL's poor financial standing. Coffee Bean suffered a $21.04-million loss last year, after 2017's $26.75-million loss.

"Historically, JFC takes around three years to flip an acquired business, but CBTL still poses additional challenges considering JFC is still in the midst of rationalizing the Smashburger operations," Cruz told CNN Philippines. Also, to make way for the CBTL deal, Highlands Coffee IPO will be pushed back from the original July 2019 timeline."

Jollibee took over the American burger chain Smashburger last year.

Cruz added that the JFC's new venture could compress margins further. JFC saw its profit slip by 14.7 percent to ₱1.54 billion in the first quarter, which it attributed to Smashburger losses.

JFC said their priority is to "accelerate the growth of The Coffee Bean and Tea Leaf brand particularly in Asia, by strengthening its brand development, marketing and franchise support system."

The firm led by successful entrepreneur Tony Tan Caktiong expects to take at least two months from the signing of the purchase deal to materialize.

The transaction is still subject to US government approvals.

Other brands under JFC are Greenwich, Mang Inasal, Red Ribbon, Burger King, and Chowking in the local market. Jollibee previously acquired global brands like Hard Rock Cafe and Pho 24.

In a statement, the Philippine Competition Commission (PCC) said the JFC-CBTL deal needs to go notify the regulator within 30 days after it was signed, which will trigger a market review. Under the rules, all mergers worth ₱2.2 billion or higher must go through PCC.