Jack in the Box Inc. (JACK - Get Report) announced on Tuesday, Dec. 19, that it was selling its Qdoba Restaurant Corp. chain to buyout shop Apollo Global Management LLC for $305 million, a move that emerged just months after high-profile activist investors Jana Partners LLC's Barry Rosenstein and Jeff Smith's Starboard Value LP bought significant positions in the company.
The restaurant chain's shares jumped 3.7% to $104 in premarket trading on Tuesday.
The sale also came after Jack in the Box last month posted weak financial results, earning 73 cents a share in the fourth quarter ended Oct. 27, 18% below estimates of 89 cents as compiled by FactSet analysts.
Revenue came up short too but by a much tamer 0.8%, at $339 million vs. analyst's projections of $341 million.
The sale emerged after The Deal, TheStreet's sister publication, reported in May that Jack in the Box could become an activist target after it announced that it was exploring options for Qdoba. Activists often push companies to spin off or sell businesses as a catalyst to create a new publicly traded company or to raise cash for stock buybacks. In other cases they quietly nudge companies already considering a sale to go through with the process.
The Street reported in November that Jack in the Box had become a hot activist target after Jana Partners acquired a 4.5% stake in the chain in the third quarter and Starboard Value accumulated a 0.6%, or $18 million stake, as well during the same period. The deadline for nominating directors was Oct. 31 for Jack in the Box's 2018 annual meeting. It was possible that one of the activist investors could have considered a contest to elect dissident directors if Jack in the Box didn't conduct a thorough strategic review process for its Qdoba unit.
Morgan Stanley & Co. LLC Gibson and Dunn & Crutcher LLP provided financial and legal advice, respectively, to Jack in the Box. Apollo was advised by Morgan, Lewis & Bockius LLP, Paul, Weiss, Rifkind, Wharton & Garrison LLP, Deutsche Bank Securities Inc., and PJ Solomon.
In addition, it is also a serious possibility that Jana Partners and Starboard will stick around to try and pressure Jack in the Box to sell itself to a private equity firm once the Qdoba sale is complete. A number of fast-casual chain restaurants have come under pressure by activists to sell themselves, and some have, including most recently Buffalo Wild Wings Inc. (BWLD) activist-pressured sale to Arby's Restaurant Group Inc. last month for $2.9 billion.
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