The Potential New Brazil Fast Food Company Buyout

The Potential New Brazil Fast Food Company Buyout

A year and a half ago many bloggers. Hedge funds. Private investors. And I banded together to campaign against a horrible proposed buyout offer by Brazil Fast Food Companies (BOBS) controlling shareholders.

At the time I thought BOBS was worth a conservative $20 – $25 per share.  So the offer by company insiders of $15.50 was ridiculous.

We made enough noise. And got enough shares together that we were able to vote down the ridiculous low ball offer of $15.50 per share.

Well now there is another offer on the table. And several people have asked my thoughts on this new offer.

Queijo Holdings Offer To Buy Out Brazil Fast Food

In January I wrote my thoughts in this post – Sad To Be Losing Ownership of This Company That Gained 129% – about the offer.

I explained in that post that I expected the buyout offer to get approved. And to lose ownership of BOBS. But I didn’t explain why I thought this.

The Queijo Holdings offer of $18.30 per share for BOBS shares not owned by the controlling shareholders is still a low ball offer. In my opinion it is a certainty to get approved.

One reason is because BOBS insiders learned their lesson from the previous failed buyout offer.

A year and a half ago BOBS insiders didn’t presecure any non controlling shareholders votes on the proposed deal.  This time they have.

The way I understand it… This vote requires a simple majority of non controlling shareholders to vote yes to approve the deal. And this time BOBS controlling shareholders have already gotten 40% of the non control voters to approve this deal.

In addition, two independent stockholder groups of the Company that approached the Controlling Stockholders, which collectively represent 40.55% of the shares of common stock held by minority stockholders, have agreed with the Controlling Stockholders to support a transaction only if the Board of Directors recommends one at the price set forth in the proposal.

This means that only 9.46% more non controlling shareholders need to vote yes to approve this deal.  While I don’t know the results of the last vote.  I will bet BOBS got more than 9.5% of non controlling shareholders to vote yes for the transaction to approve it.

The above quoted area is from this site.

The above article also explains the other reasons why I am positive this transaction will get approved.

The article explains that a “special committee” must approve this deal before it can go through. But BOBS and Queijo Holdings are picking the “special committee.” So the special committees incentives are to approve the price. And approve the deal since BOBS and Queijo are paying their fees in this case.

And whoever pays the fees for something usually gets what they want.

The above reasons are why I am positive this deal will go through.

I hope I’m wrong because I don’t want to lose ownership of this company…

But these are the reasons I expect this deal to go ahead.

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Sad To Be Losing Ownership of This Company That Gained 129%; Brazil Fast Food Buyout

Sad To Be Losing Ownership of This Company That Gained 129%; Brazil Fast Food Buyout

Two years ago on this blog I got a tip that I should look at a Brazilian fast food company for a potential investment. A buddy said I should take a look at them because of previous articles I wrote about Jack in the Box and Wendy’s.

He thought I might find this Brazilian company interesting. And a stark contrast to the two other fast food companies I had evaluated at that time. And didn’t think high of.

He was right…

This Brazilian company was growing fast. Had high and growing profits because most of its restaurants were run by franchisees. And because it was lowering its costs. It had signed exclusive agreements with Coca Cola among others. And had a moat. The first – and still only – time I’ve come across a small restaurant/fast food company with a moat.

But best of all it was undervalued by a wide margin.

I found it to be worth conservatively between $16.50 and $22 a share. And when I bought it for the portfolios I manage it was only trading at $8 a share.

From a high of $18.99 to a low near $12 per share. The last two years have been a volatile ride up and down for this company.

The company has continued to grow and improve. And there was an awful low ball taken private offer of $15.50 a share by company insiders that I and other investors in it banded together. And successfully fought against.

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Brazil Fast Foods (BOBS) has received another buy-out offer. This time at $18.30 per share by Quiejo Holdings. And even though this is still low. This time the transaction will happen. BOBS management learned from last time…

BOBS management and Quiejo Holdings have already secured 40% of the non-inside owners of its shares to agree to the deal. Making it a certainty that a majority of “outside” shareholders will approve this transaction.

While I am glad we fought the first time and will be getting an extra $2.80 for each of our shares. And for the 129% gain in 2.5 years for the portfolios I manage. I will be sad to lose ownership of this company.

Not only because this company will continue to do great in the future. But because this time of my value investing education was a turning point for me. The lessons I learned from evaluating this company are a big reason I am where I am today.

BOBS was one of my first true “investments.” And I look forward to finding many more companies like this for those who subscribe to the newsletter I write.

Thanks to Red from the Red Corner Blog for sending wonderful idea to me. And for the lessons I got from evaluating and owning this company.

2013 Portfolio Review: Cumulative Two Year Gain of 98.13%!

“Investing is where you find a few great companies and then sit on your ass.” Charlie Munger

Last year I did an entire write-up on my 2012 portfolio review going over how well or poorly all the companies I wrote articles on did after I wrote those articles.  I wrote 15 total articles last year and the companies I bought led the portfolios I manage to a gain of 26.20% last year. I thought it was a pretty good first year after truly dedicating myself to value investing but I knew I could do better after eliminating some of the many mistakes I made in that year and purging the few remaining companies I still owned in those portfolios from when I bought into them when I didn’t know what I was doing.

With the help of the rising market, eliminating some of my mistakes, doing a lot of other stuff instead of investing, and getting some tips from other value investors on companies to buy, the portfolios that I manage have gained 71.93% this year as of today.

% Gain YTD
Core Molding Technologies (CMT) 88.67%
Vivendi (VIVHY) 12.39%
Paradise Inc (PARF) 42.86%
Calloway Nursery (CLWY) 100%
Brazil Fast Food Company (BOBS) 112.63%
Strattec Security (STRT) 75%
Average Gain 71.93%

 

Core Molding Technologies – I bought into this company too early last year when I gave into my impatience after months of not being able to find a company to buy into.  At the end of last year I as sitting on an 8% point loss on my investment.  With the rising market and good continued developments at the company this year it gained 88.67%  I still own CMT.

Vivendi – At year’s end last year I was sitting on a 27% gain.  This year with all the spin offs/sales at the company YTD it has gained another 12.39%.  I still plan to hold onto this company while it continues its transition to a purely media driven company.

Paradise Inc – I bought this company in March (one of only two companies I bought this year) and in that time it has had almost no news either positive or negative so I guess this companies gains of 42.86% are chalked up to the overall rise in the market.  I still own Paradise Inc.

Calloway Nursery – The other company I bought in the calendar year of 2013.  Originally I saw other value investors like OTC Adventures writing about the company and paid no mind to it.  Luckily after talking with Jeff from the Ragnar is a Pirate blog, DTEJD1997,  them sharing some information about how much the companies properties were worth, and doing my own research into the company, I decided to buy into them and I am glad that I finally paid attention to these other investors.  I have sold out of most of my position in this company at an exact double of 100%.  So far it has taken me four months to sell out of that position and it will likely take another two to sell out of the rest of it.  I still like this company and if the price goes back down substantially, all else remaining the same, I may buy back into it again.

Brazil Fast Food Company – I bought into this company last December after Red from the Red Corner Blog recommend that I take a look into them.  Again, I am thankful that Red mentioned them to me.  After a year where the company was gaining a lot after continued good results, the companies owners wanted to take it private at a ridiculous offer, which was then voted down, and the company has continued to rise after that.  The company YTD has gained 112.63%, I still own them, and plan to hold them for the long-term.

Strattec Security Corp – Another company I bought into last December.  This company had very good continued results, had some new positive developments, the stock went up very quickly and I sold out of the entire position up 75% in May.  Since then the company’s stock price has hovered around where I sold it.  Like Calloway, if STRT drops substantially, all else remaining the same, I will buy back into them because I think they are an excellent company.

Last years 26.20% gain + this years 71.93% gain means that the portfolios that I manage have cumulatively gained 98.13% (49.06% on an annual basisin two years since I started to take this seriously.  The portfolios I manage were in 40%-55% cash the entire year and are at the higher end of that range now.  Frankly I was shocked when I saw this years gain and the two-year cumulative gain since I only do an entire portfolio review once a year.

What Does The Above Mean To Me?

Not much honestly.  A two-year track record doesn’t mean much to me since I am a long-term investor.  I was also helped a lot by two recommended companies from other value investors and the overall rise in the market.  Am I glad and excited about this great start yes, but I still have a lot of work to do and at this point I think that I am only an average to above average stock picker as I have a lot of room to improve and was helped a lot by short term luck of the stock market rising a lot.

Some of the Lessons Learned This Year

  1. My extreme patience and discipline gained from dealing with my health issues helps greatly as a long-term, very strict value investor.  I did a lot of stuff not directly related to investing this year because I could only find two companies that I could buy into all year.
  2. You need to keep a record of what you do.  This was such a long year filled with great and not so great things for me that I have recently been telling everyone I only bought one company this year.  I completely forgot about the PARF and BABB articles I wrote at the beginning of this year and that I actually bought into PARF back in March along with CLWY.  Memories are not always what they seem to be.
  3. Sometimes it pays to “steal” investing ideas from others, but you still must do your own research into the company.
  4. Turn over as many rocks as possible.  While I only invested in two companies this year I have researched hundreds if not thousands of other companies and have built up a watch list of around 20 companies.  When those companies stock prices go down I will be ready to potentially buy some of them with the cash I have built up and the knowledge I have gained of those companies.
  5. Starting a business is very hard.  This is my biggest failure of the year by far and one that I hope to rectify at some point in the future.  The business my brother and I started was a complete failure from the point of gaining customers and revenue.  At this point we are not doing anything at all with the company as we overestimated the demand in our area for our product.  We learned a lot of lessons from this and we hope to start a successful business in the future.
  6. Writing a book is very hard.  Most of my year (the better part of 10 months) was spent writing, editing, researching, etc for the book.  It was well worth it as it has provided some for my family, for two needy families Christmas presents, I learned an enormous amount, and it has hopefully helped newer investors learn this craft faster.
  7. It obviously pays to buy into a few great companies and then sit on your ass and be patient.

Goals For This Year

  1. Continue to learn something every day.
  2. Improve in some way every day.
  3. Turn over more rocks.
  4. Read more.
  5. Write more.

I hope you all had a great year, thank you all so much for all the conversations, reading this blog, buying my book, and I look forward to talking with you all more and getting back to writing more articles for the blog in this coming new year.

 

Brazil Fast Food Company, $BOBS, Taken Private Offer Voted Down By Shareholders

Brazil Fast Food Company, $BOBS, Taken Private Offer Voted Down By Shareholders

Thanks to Brian for the heads up this morning and sending me a link for the following news this morning as I was getting my daughter ready for her newborn appointment. Emphasis is mine.

 

RIO DE JANEIRO, Nov 20, 2013 (BUSINESS WIRE) — Brazil Fast Food Corp. (otc markets:BOBS) (the “Company”), the second largest fast-food restaurant chain in Brazil with 1,085 points of sale, today announced that the investor group (the “Investor Group”) has withdrawn its offer to acquire all outstanding shares of the Company not owned by the Investor Group. The offer was for US$15.50 per share in cash under a merger agreement with the Company. That merger agreement was terminated by the Investor Group this morning following a Company stockholder meeting at which an insufficient number of stockholders voted in favor of the proposal.

In its termination letter to the Company, the Investor Group stated, “We continue to believe that the $15.50 price recommended by the special committee of the board of directors was a fair price, as the independent directors and their financial advisor had determined. In our view, that price became even more attractive since the merger agreement was signed on September 27 because, among other reasons, the Brazilian Real has further depreciated since that time. The unaffiliated stockholders, however, have determined to remain invested in the Company which we take as a vote of confidence in the Company’s prospects even in light of the increasingly challenging Brazilian market conditions.”

No breakup fee is to be paid in connection with the termination of the proposal.

About Brazil Fast Food Corp.

Brazil Fast Food Corp., through its holding company in Brazil, BFFC do Brasil Participacoes Ltda. (“BFFC do Brasil”, formerly 22N Participacoes Ltda.), and its subsidiaries, manage one of the largest food service groups in Brazil and franchise units in Angola and Chile. Operating under (i) the Bob’s brand, (ii) the Yoggi brand, (iii) KFC and Pizza Hut Sao Paulo, as franchisee of Yum! Brands Brazil, and (iv) Doggis, as master franchisee of Gastronomia & Negocios S.A. (former Grupo de Empresas Doggis S.A.), our subsidiaries are Venbo Comercio de Alimentos Ltda. (“Venbo”), LM Comercio de Alimentos Ltda. (“LM”), PCN Comercio de Alimentos Ltda. (“PCN”), CFK Comercio de Alimentos Ltda. (“CFK”, former Clematis Industria e Comercio de Alimentos e Participacoes Ltda.), CFK Sao Paulo Comercio de Alimentos Ltda. (“CFK SP”), MPSC Comercio de Alimentos Ltda. (“MPSC”), FCK Comercio de Alimentos Ltda. (“FCK”, former Suprilog Logistica Ltda.), DGS Comercio de Alimentos Ltda. (“DGS”), Yoggi do Brasil Ltda. (“Yoggi”), Schott Comercio de Alimentos Ltda. (“Schott”), Little Boss Comercio de Alimentos Ltda. (“Little Boss”), CLFL Comercio de Alimentos Ltda. (“CLFL”) and Internacional Restaurantes do Brasil S.A. (“IRB”). IRB has 40% of its capital held by Mascali Participacoes Ltda., another Brazilian limited liability company, whose main partner is the CEO of IRB.

Safe Harbor Statement

This press release contains forward-looking statements within the meanings of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known or unknown risks, uncertainties and other factors that may cause the actual results to differ materially from those expressed or implied by such forward looking statements. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see the disclosures in the Company’s financial reports, including the risk factors contained in the Company’s most recent annual report and quarterly reports available on its website www.bffc.com.br.

SOURCE: Brazil Fast Food Corp.

Great news of course for all BOBS shareholders as that offer of $15.50 a share was ridiculously low as was outlined many places and talked about on this blog here and here.

Thank you to everyone who voted no to the offer and everyone who I have been in contact with over the last several weeks as this offer was considered.  Thanks to all of you concerned shareholders we were able to vote down the offer and keep a hold of this massively undervalued and growing company for at least a little while longer.

I was asked this morning if I think the BOBS insiders would seek any kind of “revenge” against minority shareholders in the near future.  I do think that with this no vote does come some downside for us remaining shareholders.  Being a bit of a cynic, especially after something like this has happened, I do think that the next several quarters earnings and growth will be lower than they have been in recent quarters.  Possibly artificially lower due to management wanting to get the companies price lower so they can attempt another buy out at a lower price, or because of the real problems that are going on in Brazil, even if management in my estimation overstated some of the concerns going on there.  I also expect that if the insiders do attempt to take the company private again that they are not likely to give minority shareholders the same benefit of “Outside” shareholders having the only votes on the matter like they did this time.

In any case I plan to hold onto my BOBS shares for the time being and if I am right and the share price drops for any issues, real or manufactured, everything remaining the same I will just buy more shares of the company.

Congratulations and thank you to everyone, but I am preparing for a bit of a bumpy ride at least in the short-term as a BOBS shareholder.

Quick Update About The Brazil Fast Food Going Private Offer

I have been in contact with several other BOBS investors thus far. Not including some people who have at this point not wanted to disclose how many of its shares they own, the people I have been in contact with own around $10 million in total worth of BOBS shares at the $15.50 offer price.  At this point nothing is concrete as far as I know but I will keep you all in the loop about the plans to push for a better offer if and when we get to that point.

Again, if you are a BOBS shareholder I would love to hear from you and maybe if we get enough capital together we can push for a much higher and more realistic offer price for the company.

For why I think the going private offer is ridiculously low, please read my post here.