MONTREAL – MTY Food Group Inc., a leading franchisor, and Papa Murphy’s Holdings Inc. entered into a definitive merger agreement in which an MTY subsidiary will submit a tender offer for all of the issued and outstanding shares of Papa Murphy’s common stock for $190 million (C$253.2 million), or $6.45 per share. Papa Murphy’s is a franchisor and largest operator of take ‘n’ bake stores in the US.
The transaction, which MTY will fund in cash, is expected to be immediately accretive to MTY’s EBITDA and cash flow per share. MTY also will use its cash on hand and an existing credit facility to pay off Papa Murphy’s net outstanding debt of approximately $77.4 million at the close of the transaction which is expected in the second calendar quarter of 2019.
“The purchase price per share of Papa Murphy’s common stock implies a premium of 31.9 percent to the Papa Murphy’s closing price on April 10, 2019 and 46.3 percent to the unaffected Papa Murphy’s closing price on Nov. 7, 2018 prior to the announcement by Papa Murphy’s that it was conducting a process to explore and evaluate strategic alternatives to maximize shareholder value and had engaged a financial advisor to assist with the review,” MTY said.
The boards of directors of both companies unanimously approved the transaction which is subject to customary closing conditions and regulatory approvals.
For the take ‘n’ bake pizza maker, the merger comes after the company implemented a refreshed corporate strategy and refocus on the brand. Papa Murphy’s is trying to build momentum.
“The board of directors and our advisors have thoroughly evaluated all options available to us and are confident that this agreement provides immediate value to our stockholders at a premium over our current share price,” said Jean Birch, chairperson of the board of directors of Papa Murphy’s. “Merging our unique, differentiated brand with a global leader in franchised restaurant concepts will accelerate on-going efforts to enhance our convenience and relevance and maintain our position as the number one Take 'n' Bake pizza chain in the United States.”
Montreal, Canada-based MTY is a franchises and operates quick-service and casual dining restaurants under roughly 75 different brands in Canada, the United States and internationally. The company’s network included 5,941 locations in operation, mostly all franchised, including more than 500 locations in 39 countries outside North America as of Feb.28, 2019. The merger with Papa Murphy’s increases MYT’s exposure in the US pizza market. The transaction also complements MYT’s US-based business and reduces the seasonality of its results.
“This is an important transaction for MTY as we add a brand with a differentiated position in pizza to our existing US portfolio,” said Eric Lefebvre, CEO of MTY. “We are thrilled about the prospect of welcoming the Papa Murphy’s brand, its franchise partners and employees, to the MTY family.
“Papa Murphy’s is a unique concept with over a 35-year history of providing a superior quality product made with fresh ingredients,” Lefebvre added. “We believe the pizza segment is highly attractive due to its size, fragmented nature and growth potential. The Papa Murphy’s brand is well loved by its loyal customers and is supported by a strong network of franchise partners. We expect the combination of these two companies and the expertise it brings to produce tremendous opportunities for MTY’s US expansion objectives.”
Founded in 1981, Papa Murphy’s is the fifth largest pizza chain in the US. Papa Murphy’s currently operates more than 1,400 franchised and corporate-owned stores in 37 US states, Canada and the United Arab Emirates. The company reported system-wide sales of $809 million for the fiscal year ended Dec. 31, 2018. Adjusted earnings before taxes and interest (EBITDA) for the 12-month period was $22 million. MTY plans to maintain the current support center in Vancouver, Washington.