The Canadian franchisor behind Second Cup and Freshii says MTY's board rebuffed it twice. Its pitch leans on $220 million in write-downs and a decade of shrinking same-store sales.
Less than four weeks after MTY Food Group decided it was better off staying whole, a rival franchisor is asking MTY's shareholders to overrule that call.
Foodtastic, the Montreal company behind Second Cup, Freshii, Pita Pit and roughly 30 other brands, made public on Nov. 3 a non-binding proposal to buy all of MTY for C$43 a share in cash. In a letter to MTY's board, Foodtastic said the price is about 32% above MTY's Oct. 30 close and 37% above its 30-day volume-weighted average. Bloomberg, as reported by Quartz, put the equity value at about C$1 billion and roughly C$1.5 billion including debt.
Foodtastic said it sent the offer in writing on Oct. 15 and again on Oct. 20. In an Oct. 30 reply, MTY's board "determined that it is not in [MTY's] best interest to engage," according to the letter. So Foodtastic went public.
Its case is about performance. The letter says MTY has written down $220 million of acquisition value since 2020, and that unit counts and same-store sales have both "consistently declined over the last decade," setting aside acquisitions and the pandemic years. "MTY is a great company with excellent opportunities, but it has unfortunately not lived up to its full potential in recent years," said Peter Mammas, Foodtastic's president and CEO.
MTY's latest quarter gives him material. Over the 13 weeks ended Aug. 30, comparable sales fell 1.9%, with the U.S. down 2.7%, and the company closed a net 74 restaurants, Quartz reported. On Tuesday, MTY also named director Victor E. Mandel chief executive, effective immediately, replacing Eric Lefebvre, who is leaving the company and its board.
The board's alternative is the plan it chose on Oct. 9, when MTY ended its strategic review without a sale: restart buybacks, raise the quarterly dividend 35% to 50 Canadian cents, shrink its corporate store base, and keep open the option of selling brands it has no growth plan for.
For franchisees across MTY's 6,966 locations and more than 80 banners, the premium matters less than the plan. Foodtastic, which runs about 1,200 locations, argues MTY's portfolio needs "patient, long-term focus" that public markets don't reward. That is the same pitch behind the Trian and Flynn Group bid for Wendy's and Fund 1's offer for Xponential. The letter does not say which MTY brands Foodtastic would keep, invest in or sell.
Foodtastic, backed since 2018 by funds managed by Oaktree Capital Management, according to Bloomberg, says its financing would be fully committed when definitive agreements are signed, after confirmatory diligence. That diligence requires a door MTY's board has so far kept shut.
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