Jollibee buys Coffee Bean & Tea Leaf

Jollibee Foods Corp., the Philippines’ biggest restaurant company, will spend $350 million to buy the money-losing Coffee Bean & Tea Leaf.

Jollibee will invest $100 million for an 80% stake in a Singapore venture set up with Vietnamese partners to acquire Coffee Bean, it said in a stock exchange disclosure. The rest of the amount will be in the form of advances.

Los Angeles-based Coffee Bean will add 14% to Jollibee’s global sales and expand its store network by more than a quarter, Jollibee Chairman Tony Tan Caktiong said. The coffee chain was founded in 1963 and opened its first coffee shop in L.A.’s Brentwood neighborhood in 1968. It has grown to 1,189 stores, most of which are in Asia, and last year it reported a net loss of $21 million on revenue of $313 million.

According to an April auditors report prepared by Ernst & Young, the coffee company had a senior credit facility that would mature this month, “which raises substantial doubt about the company’s ability to continue as a going concern.”

The Coffee Bean acquisition is Jollibee’s largest to date, according to Bloomberg data. It follows Jollibee’s $210.3-million takeover of American fast-food chain Smashburger last year.

Shares of the restaurant company, whose namesake chain is famous for its fried chicken, have dropped more than 13% since their Tuesday close. The Coffee Bean deal was announced Wednesday.

Jollibee said the deal will boost contributions from international businesses to 36% of its total sales and closer to its goal of becoming one of the top five restaurant companies in the world in terms of market capitalization.

Owners of Viet Thai International Joint Stock Company, Jollibee’s partner in Highlands Coffee and Pho 24, will subscribe to the remaining 20% of the Singapore venture. The initial public offering planned for Highlands Coffee this month is delayed and under review.

“There is market skepticism that this purchase will be earnings accretive considering Coffee Bean’s 2018 loss is about 12% of Jollibee’s profit last year,” said Rachelle Cruz, an analyst at AP Securities.

“Smashburger is yet to contribute positively on earnings and here is another acquisition that will probably be earnings dilutive in the next two to three years,” she said.