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Papa John’s (NASDAQ: PZZA) is officially moving on without Papa John.
After a report last week from Forbes that the company’s founder, John Schnatter, had used a racial slur in a conference call, Papa John’s announced this week that Schnatter had stepped down as chairman and had been ousted from the building.
Schnatter, the public face of the pizza chain who had stepped down as CEO late last year after causing another uproar when he got in on the debate over national anthem protests in the NFL, used the N-word in a conference call between Papa John’s executives and marketing agency Laundry Service, a call that was designed to be a role-playing exercise for Schnatter in an effort to avoid future public relations nightmares, according to Forbes.
On the news that the company had announced Schnatter’s ouster as chairman, shares soared 11%. And this week, his departure has sparked conversation about Papa John’s attractiveness as a takeover target.
Any acquisition hinges on what Schnatter wants to do and there’s every chance the company could remain independent. Despite no longer being the face of the company nor its Chairman, Schnatter remains on the board and is still the company’s largest shareholder with a 30% stake.
But the company is still down roughly 44% from its all-time highs reached in late 2016, and the pizza chain has lost considerable market share from competitors Pizza Hut and Domino’s in the last two years after its two major scandals have left customers with a bad taste in their mouths. With Schnatter in a weakened position, and with the company at a discount, potential suitors may now feel more comfortable with an approach.
But who would buy the company?
News broke yesterday that Wendy’s (NASDAQ: WEN) had had preliminary merger talks with the pizza chain before the most recent scandal erupted and Schnatter stepped down as chairman last week. It has also been speculated that Domino’s Pizza (NYSE: DPZ) could also be an interesting suitor for Papa John’s.
But my money is on Restaurant Brands International (NYSE: QSR) as a more logical suitor for the brand. Restaurant Brands International is the Canadian conglomerate that owns Burger King, and Tim Hortons, and recently purchased fried chicken chain, Popeyes Louisiana Kitchen. Earlier this year, rumors swirled that QSR was hungry for a pizza play, and Papa John’s may just turn out to be on the menu.
While QSR has said it won’t comment on takeover rumors, Oppenheimer analyst Brian Bittner had this to say about the possible pairing: “DPZ’s fundamentals are best-in-class, but PZZA’s anatomy better fits QSR’s deal characteristics: its footprint has most growth potential, its financial engineering synergies are clearest and its size/multiple is immediately digestible.”
Right now, Papa John’s is valued at $1.6 billion. QSR just paid $1.8 billion to acquire Popeyes. So it seems that Papa John’s is valued at a price that would be easily digestible for QSR.
Such an acquisition would also help Restaurant Brands more directly compete with Yum! Brands (NYSE: YUM), the conglomerate that owns Papa John’s rival Pizza Hut, as well as KFC and Taco Bell.
For Restaurant Brands, a pizza chain is arguably the missing piece of the pie. It already has burgers, fired chicken, and coffee and doughnuts, and pizza would certainly complement the conglomerate’s other fast-food mainstays without cannibalization.