Jollibee acquisition of CBTL may drag earnings growth

Jollibee Foods Corp.’s acquisition of California-based The Coffee Bean & Tea Leaf has left a bitter taste, with market observers seeing JFC’s latest move as a drag on earnings growth for the next three years.

“There’s negative sentiment because investors are thinking it’s a bit of a drag. Many are asking if they can really turn it around? It will be a bit of a drag on JFC’s earnings,” Harry Liu, president of Summit Securities Inc. said in an interview.

Unicapital Securities Inc. likewise gave a similar view.

“In our view, the acquisition would be earnings dilutive in the next three years given the competitive nature of the coffee industry. Currently, CBTL has 1,189 stores worldwide, which are only about two percent of the top five players. This was evident in its past two-year performances. We factored in the acquired stores coupled with adjustment in forecast assumptions and this cut our target price to P295 per share,” Unicapital said.

First Metro Securities Corp. also said that the coffee company incurred a $21.4 million and $25.5 million loss in 2018 and 2017, respectively.

“We think that this acquisition will drag JFC’s earnings performance upon consolidation,” it said.

JFC announced last week that it has acquired CBTL for $350 million with an initial investment of $100 million.

Through its wholly owned subsidiary JollibeeWorldwide Pte Ltd. (JWPL, Singapore), it has entered into an agreement to invest $100 million in a new Singapore-based holding company to acquire 100 percent of CBTL.

Its share price lost 7.99 percent to finish at P251 per share after the announcement.

The acquisition of CBTL will be JFC’s largest and most multinational so far with business presence in 27 countries, said JFC chairman Tony Tan Caktiong.

“This will bring JFC closer to its vision to be one of the top five restaurant companies in the world in terms of market capitalization,” he said. CBTL will be JFC’s second largest business, next to the Jollibee brand and the coffee business will account for 14 percent of JFC’s worldwide system sales.

“Our 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,” Tan Caktiong said.

The acquiring entity will be JWPL’s wholly owned subsidiary Java Ventures LLC, which would eventually be a wholly owned subsidiary of the new Singaporebased holding company.

CBTL is a coffee and tea shop chain owned by International Coffee & Tea, LLC based in Los Angeles, California. The current owners of International Coffee & Tea are Advent Coffee Holdings Corp., Alexandria II Corp., CBTL Holdings Corp., The Sassoon Group LLC and ICT Incentive Holdings.

Founded in 1963, CBTL has 1,189 outlets around the globe as of end of last year, of which 336 are company owned and 853 are franchised. It has 284 branches in the US, 447 in Southeast Asia (Philippines 139, Indonesia 101, Malaysia 99, Singapore 61), 336 in other Asian countries (South Korea 292), and 122 in other regions (Kuwait 36, Qatar 28, India 27). At present, JFC operates the largest food service network in the Philippines. In all, the JFC’s Group has a worldwide store network of 4,613 stores.