Brazil Takeover — Probably Have to Accept it, But No Rush

One of our longer-term huge winners just got a relatively tepid take-under bid

By Travis Johnson, Stock Gumshoe, September 27, 2013

This morning I was surprised to see a note that the CEO and a group of insiders are trying to take Brazil Fast Food (BOBS) private — not because it’s a bad idea on their part, but because the timing is a little odd.

Brazil Fast Food is an operator of fast food restaurants, including the Bob’s chain of hamburger shops that’s Brazil’s answer to McDonald’s. Not that you cant’ also find McDonald’s in Brazil, the country is a major focus both of Arcos Dorados (ARCO), which is the master franchise holder for most of Latin America, as well as of now Brazilian-controlled Burger King (BKW). BOBS also owns franchises for KFC and Pizza Hut that contribute significantly to the company, but their profit comes largely from franchising out Bob’s restaurants and their other local concepts, including the Yoggi’s frozen yogurt chain.

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And the stock has been on an incredible tear — I first suggested it many years ago at about $4.50, and it has been volatile thanks to input cost inflation (labor and food) in Brazil, and has certainly been swayed in US dollar terms by the movement in Brazil’s currency, but the company has managed the changes very well, reorganizing and constantly reacting with store closures, openings, franchises, new concepts, and profitable deals. I last looked at the stock in mid-August and concluded that it was probably fairly valued at the then-current price of about $14.50, with the very reasonable chance that it could grow quickly in the buildout for the Olympics and the World Cup in Brazil in the coming years and, if the story got out among investors, could become nicely overvalued for a better selling opportunity.

Doesn’t look like we’re going to get that chance. The shares had spiked up over $17 in recent weeks, but now we’re told that the CEO and other insiders and investors representing about 75% of the shares are offering to take the company private at $15.50 a share — which seems like a bit of a discount given the fact that the shares have traded between $15.25 and $17.50 over the past month. They’ve gotten the board approval, but do require a majority of the non-affiliated shareholders — so that’s mostly small shareholders, presumably, like you and I. Will they approve the proxy at $15.50 even though it’s seven or eight percent below ...

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