After recovering from a pedophile spokesman, a 'yoga mat' scandal and a fake tuna lawsuit, the future of Subway Restaurants is up in the air following the death of the fast-food giant's co-founder, Peter Buck.
Buck - who became a billionaire after loaning Fred DeLuca $1,000 in 1965 to open a sandwich shop in Bridgeport, CT, died last week at the age of 90.
As the New York Post notes, the sandwich chain had been in negotiations for a potential sale to Restaurant Brands International - the Brazil-based owner of Burger King. The talk fizzled, leading to RBI purchasing smaller competitor, Firehouse Subs, for $1.1 billion.
Negotiations fell apart, however, due in part to disagreements between Buck and DeLuca's widow, Elizabeth - as each party has controlled 50% of the chain since DeLuca's 2015 death. According to the report, "one of them — it wasn’t clear which — had been holding out for a higher price than the other" according to a source familiar with the negotiations.
The company has denied any potential sale.
"Subway is not for sale," said a spokesperson in a statement. "Sales momentum has steadily been building since the beginning of 2021 and the launch of Subway’s Eat Fresh Refresh campaign this summer accelerated that momentum. We expect to exceed our sales projections in 2021 by more than $1 billion."
Some dealmakers are skeptical, noting that Subway two years ago hired John Chidsey to be its first permanent chief executive. Chidsey’s most notable achievement, they say, may have been his stint as CEO of Burger King, which culminated in the chain getting sold in 2010 to Restaurant Brands.
Since taking the reins at Subway, Chidsey has squeezed franchisees for cash, raising fees and tightening lease restrictions — moves that can typically precede a sale. Now, however, dealmakers say the thinking of Buck and DeLuca’s heirs remains a mystery.
“This throws a wrench into the sale,” one source said of Buck’s death last week, noting that Buck was a widower. “Now the shares might be tied up in probate.” -NY Post
According to the report, DeLuca - who ran the company for more than 50 years, did very little in the way of estate planning. His sister Suzanne Greco tried running the company for three years after his death, only to step down in 2018. DeLuca's son Jonathan is a board director with no operational role, while Buck's son Christopher holds the same position.
"No one knows what is in his will," said one dealmaker of Buck. "Sounds like the Subway sale process is on indefinite hold."
With Restaurant Brands International off the table, and its second-most logical purchaser - Roark Capital - having just acquired Subway competitor Jimmy John's in 2019, two brands have emerged as longshot buyers; TPG Capital, or YUM Brands, which owns Taco Bell and KFC.
"I think it is private equity," said yet another source close to the situation. "And I don’t think sponsors would pay a big multiple."
Sources briefed on the mega-franchise’s business — whose nearly 22,000 locations nationwide generated $634 million in royalty fees last year, down from $834 million in 2019 — say it would likely fetch between $8 billion and $10 billion in a sale.
That’s a far cry from the $50 billion valuation that Subway had privately been eyeing as it prepped for a possible initial public offering in 2012, according to sources.
That also was before former spokesman Jared Fogle’s 2015 conviction on child-porn and sex crime charges. Meanwhile, Subway since has been slammed with bad publicity over its food, including accusations that its bread contained chemicals found in yoga mats; reports that its processed chicken contained sawdust; and this year a lawsuit that alleges it has been selling fake tuna. -NY Post
According to the Post's sources, the company's nearly 22,000 nationwide locations generated $634 million in royalty fees last year - down from $834 million in 2019. The company would likely fetch between $8 billion and $10 billion in a sale - a far cry from its $50 billion valuation the company had been eyeing in 2012 as it considered an initial public offering.