Brazil Fast Food Company Insiders Ridiculous Offer To Take The Company Private

Brazil Fast Food Company Insiders Ridiculous Offer To Take The Company Private

I woke up to this news this morning, emphasis is mine:

Brazil Fast Food Corp. Proposes to be Acquired

RIO DE JANEIRO–(BUSINESS WIRE)– Brazil Fast Food Corp. (OTC Markets:BOBS) (the “Company”), the second largest fast-food restaurant chain in Brazil with 1,057 points of sale, today announced its entry into a definitive merger agreement pursuant to which Ricardo Figueiredo Bomeny, its CEO, and certain other shareholders (collectively, the “Investor Group”) representing approximately 74% of the Company’s outstanding shares, propose to acquire all outstanding shares of the Company at a price of US$15.50 in cash per share, or a total equity value of approximately US$32,556,045.

Under the terms of the merger agreement, Company stockholders would receive US$15.50 in cash for each outstanding share of Company common stock they own.

The merger, which is expected to close during the fourth quarter of 2013, requires the approval of the majority of the non-controlling stockholders who vote on the merger agreement. The transaction is not contingent on any financing.

The transaction is subject to other customary conditions, in addition to the stockholder approval described above. If the Company terminates the merger agreement because the Company’s Board of Directors authorizes entering into an Alternative Acquisition Agreement (as defined in the merger agreement), or if the Investor Group terminates the merger agreement because the Company’s Board of Directors changes its recommendation of the Investor Group’s offer, the Company must pay the Investor Group a US$1 million termination fee.

The Company’s Board of Directors acting on the recommendation of a Special Committee of independent directors unanimously approved a merger agreement under which the Investor Group would acquire the Company and take it private subject to a number of conditions, including a vote of the unaffiliated stockholders.

The Special Committee retained independent financial advisor Duff & Phelps and legal advisor Baker & McKenzie to advise it. The Investor Group retained financial advisor A:10 Investimentos and legal advisor Linklaters LLP to advise it.

Gustavo Alberto Villela Filho, who was a member of the Special Committee, said, “The Special Committee and its advisors conducted a disciplined and independent process intended to ensure the best outcome for shareholders.”

Ricardo Bomeny, CEO of the Company and part of the Investor Group, said, “I believe this transaction offers an exciting opportunity for Brazil Fast Food Corp. and its shareholders by delivering immediate value to those shareholders while allowing us to focus on long-term strategy and goals as a private company.”

In connection with the transaction, the Company will send to its stockholders a proxy statement and other documents, including a form of proxy card. The proxy statement and a form of proxy will be mailed to the Company’s stockholders. Stockholders are urged to read the proxy statement and any other documents sent to them carefully because they will contain important information about the transaction. Stockholders will be able to obtain a free copy of the proxy statement at the Company’s website of www.bffc.com.br, and upon request to the Company.

 

As Red from The Red Corner Blog said on Twitter:


If you are an owner of BOBS or follow the company at all you will know that this is a below market offer.  The company opened trading at $16.50 per share this morning so their offer is a 7% discount to what the market thought the company was worth and well below what I and others think the company is worth.

It does seem that a majority of the non-controlling shareholders have to approve this deal which is good if that really means what it seems like.  However, I have not been able to find clarification on what exactly that means but hopefully it means all outside investors.

I have not been able to find any significant fund or institutional ownership of BOBS on sites like Morningstar, but I am talking with several other “outside” investors, (Including a couple that own substantial portions of the outsider shares) on potentially collaborating to push for a higher offer.  If you are a BOBS shareholder and would like to collaborate please contact me through my contact page.

In my first article on BOBS which can be viewed here, I explained why I thought it was worth between $16 and $22 a share in December WITHOUT discounting its massive NOL’s at all.  In my second BOBS article, which can be viewed in total here by SA Pro members, I showed why I think the company is CONSERVATIVELY worth $20-$25 a share, this time discounting its NOL’s by 50%.  If you are not an SA Pro member I will repost just the valuation here.

Numbers are in millions of Brazilian Real, except per share information, unless otherwise noted.  The numbers I have bolded are what I am going to talk about here.

EBIT and net cash valuation

Cash, cash equivalents and short-term investments are 38.61.

Total current liabilities are 51.50.

Number of shares are 8.13.

Cash and cash equivalents + short-term investments – total current liabilities = 38.61-51.50 = -12.89/8.13 = R$-1.59 per share = -$0.71 in net cash per share.

BOBS has a trailing twelve-month EBIT of 33.58.

5X, 8X, 11X, and 14X EBIT + cash and cash equivalents + short-term investments: Using CURRENT exchange rate of $1 USD to R$0.45 and not the exchange rate from an original article.

  • 5X33.58 = 167.9+38.61 = 206.51/8.13 = R$25.40 per share which equals $11.42 per share.
  • 8X33.58 = 268.64+38.61 = 307.25/8.13 = R$37.79 per share which equals $16.99 per share.
  • 11X33.58 = 369.38+38.61 = 407.99/8.13 = R$50.18 per share which equals $22.56 per share.
  • 14X33.58 = 470.12+38.61 = 508.73/8.13 = R$62.57 per share which equals $28.31 per share.

Plus NOL’s: R$37.3 from income tax and R$68.7 from social contribution tax which is a total of R$106, or $47.65, which equals a total of $5.86 per share. I’m discounting this amount by 50% due to my conservatism and because of how long some of these will take to realize which brings the per share total down to $2.93.

  • 5X EBIT + cash and cash equivalents estimate of $11.42 per share + $2.93 per share = $14.35 per share.
  • 8X EBIT + cash and cash equivalents estimate of $16.99 per share + $2.93 per share = $19.92 per share.
  • 11X EBIT + cash and cash equivalents estimate of $22.56 per share + $2.93 per share = $25.49 per share.
  • 14X EBIT + cash and cash equivalents estimate of $28.31 per share + $2.93 per share = $31.24 per share.

Relative Valuations

TEV = Market cap + all debt equivalents (Including the capitalized value of operating leases, unfunded pension liability, etc) – cash – long-term investments – net deferred tax assets.

  • TEV = 117.1+147.67-38.61-18.51 = R$207.65 = $93.44
  • TEV/EBIT = 6.18
  • EV/EBIT = 3.23
  • EBIT/TEV (Earnings Yield) = 16.17%

If you compare the first article to the second one you will notice that its profitability has continued to improve in the ensuing months.  This has helped increase the overall value of the company and has kept them massively undervalued as their TEV/EBIT and EV/EBIT are about what they were in December when they were selling at $8 a share.  Their earnings yield has actually improved in that time.

In the second article I discounted the NOL’s by 50% due to my conservatism, and the company is still worth at 8X and 11X EBIT $20-$25 a share which is what I think is its intrinsic value range at MINIMUM today.  That valuation completely discounts 50% of its substantial NOL’s and does not count any future growth potential at all which is substantial.  If the company were to stay on its current trajectory and with the upcoming 2014 World Cup and 2016 Olympics both in Brazil, I think the company could AT LEAST be worth $30-$50 a share in a few years time.

Suffice it to say I think that the current offer is absolutely ludicrous by the insiders of BOBS who appear to be trying to steal the company from its outside shareholders and think that we should hold out and push for a much higher offer and I urge all BOBS shareholders to vote no to this ridiculously low ball offer.

Excellent Links From When I Was Writing How To Value Invest Part 1

Excellent Links From When I Was Writing How To Value Invest Part 1

While I was writing How To Value Invest I did not do very much learning about value investing.  I did however save every link that I thought might contain some excellent information from those emails dating back to February, and plan to share what I think the very best links were from that time frame over the coming weeks while I am researching companies again.

Hedge Fund Letters – Shareholder letters from a bunch of different funds including Baupost, Fairholme, Berkshire, Fairfax, and many others.

Contrarian Investing In Quality Franchises – From Beyond Proxy and author Oliver Mihaljevic.

Walking Away From A Few Million Dollars Part 5 – This is from Ragnar is a Pirate and is the conclusion piece on a potential real estate investment and the potential pitfalls of investing in real estate.

How Morningstar Values Berkshire – Goes through multiple different valuation techniques and values Berkshire Hathaway.

How To Get Into The Value Investors Club by Whopper Investments who recently got accepted into VIC, something I have failed twice at thus far.  Hopefully I picked up some pointers from Whopper for my next attempt.

Punchcard Investing Blog – An excellent new blog which concentrates on companies with moats and competitive advantages.  I highly recommend going back and reading the entire blog.

What Was The Biggest Turning Point In Your Life?  Excellent article from BenPhilabaum.com about making small incremental changes every day instead of waiting for that one big break.

Quickly Master Any Skill The Tim Ferriss Way By Learning Out Of Order by Lifehacker.  This is a 24 minute video that is well worth your time if you want to learn things more efficiently.

Why Berkshire’s McLane Has A Moat and are There Similar Companies in Asia from Beyond Proxy.  Excellent piece on one of Berkshire’s subsidiaries, how to spot moats, what builds a moat, etc.

The Greatest Investment Book Ever Written from The Brooklyn Investor.  Not your typical investment book recommendation.

I Got Interviewed About Core Molding Technologies By MergerMarket; A Part Of The Financial Times Network

Mergermarket Mark.jpg                            Visit mergermarket.com

I Got Interviewed About Core Molding Technologies By MergerMarket; A Part Of The Financial Times Network

Directly below is the link to the article where I got interviewed about Core Molding Technologies by MergerMarket; a part of The Financial Times network. The original PDF can be viewed in the following link.  Interviewed By MergerMarket About Core Molding_09.23.13

Tying Up Loose Ends Part 2: Site Updates, Portfolio Update, and Updates On Companies I Own

Tying Up Loose Ends Part 2: Site Updates, Portfolio Update, and Updates On Companies I Own

I have updated the site for the first time in months and today it is the portfolios turn. Over the weekend I updated the Translation Page/Traducción de página/صفحة ترجمة/翻译页面/Übersetzung Seite/翻訳ページ/번역 페이지, and the Recommended Value Investment Reading and Viewing with updated information and sites.  I also combined, and then deleted, the Helpful Links page with the Recommended Value Investment Reading and Viewing page because a lot of the information was redundant.

For the time being the portfolio below is based on the portfolios that I manage.  Earlier this year I liquidated my personal account to fund the start-up of me and my brothers business, pay off some bills, go on a trip for the first time in 10 years, and save money for me and my wife’s baby that is due in late October.  I am going to start building the funds in my personal portfolio back up again as soon as possible

092313_0142_1.png

Cash – Approximately 40% of portfolio.

Calloway Nursery, CLWY – Approximately 19% of portfolio.  I have a sell order pending for this company now due to it rising close to my estimate of its intrinsic value so the above chart could change if my sell orders are filled.  Up 90% as of today since I bought them in March.

Brazil Fast Food Company, BOBS – Approximately 14% of portfolio. First article I wrote about them can be viewed here, second article can be viewed here.  As of today up 109% since buying them in December.

Vivendi, VIVHY – Approximately 11% of porftolio. First article I wrote about them can be viewed here.  As of today up 32% since buying into them in June of 2012.  The following two links are recent updates about the company and its plans.  Vivendi is still thinking about splitting the company further after the sale of Activision Blizzard goes through.  The sale of Activision Blizzard has been put on hold by court in Delaware.

Paradise Inc, PARF – Approximately 10% of portfolio.  First article I wrote about them can be viewed here, second article can be viewed here.  As of today the position is about even since buying in March.

Core Molding Technologies, CMT – Approximately 5% of portfolio. First article I wrote about them can be viewed here.  As of today up 27% since buying into them in August of 2012.  The company has won multiple awards in recent months for being an excellent supplier and has also added significant additional business with Volvo.

As you can see from the portfolio above I have made some changes in the portfolio since my last update adding Calloway Nursery and selling Strattec and Main Street Capital.  I sold Strattec up nearly 75% since buying into them in December because they rose very fast to the high-end of my estimated value for them.  Will possibly buy back into them again if their price falls because I still think they are an excellent company.  I sold Main Street Capital up 65% due to the liquidation of my personal portfolio, which is the only place I held it, due to the reasons listed above.

Tying Up Loose Ends Before Getting Back To Researching Companies Part 1

Tying Up Loose Ends Before Getting Back To Researching Companies Part 1

Since How To Value Invest launched two weeks ago I have spent the ensuing time relaxing, recovering from a sinus infection, and learning about investing for the first time in months.  While I was writing and getting the book ready to be published I did almost zero learning about investing but I did save every link and email that looked like it could contain some excellent value investing information.  I have gone through those emails that were saved up since February and will share what I have learned from those with you in the coming days including some excellent new blogs, how to learn better, a plethora of information about value investing, and a ton of excellent information from the Fundoo Professor Sanjay Bakshi in particular.  I will also be updating what I now own in the portfolios that I manage, the recommended reading page, and what has gone on at some of the companies that I own in the last month or so.

I will be getting these posts together over the weekend and then this coming Monday I am going to start sharing all of this information with you over the coming days and possibly weeks.  After I finish learning what I am learning,  I am immediately going to get back to doing what I love to do, researching, evaluating, valuing, and writing about companies for potential investment.   Frankly I forgot how much I absolutely love learning and it has been amazing getting back to doing it and cannot wait to start sharing all of this information with you, writing company analysis articles again, and learning from you all.