Papa Murphy’s is making progress toward finalizing a $190 million deal to be acquired by Canadian casual restaurant conglomerate MTY Food Group, the parent company of brands such as Baja Fresh, Taco Time and TCBY.
The Federal Trade Commission posted a notice granting approval of the deal on April 19, and federal filings from both companies in the past few weeks shed new light on the process, including the negotiations that led to the sale price of $6.45 per share.
MTY filed a Tender Offer Statement with the Securities and Exchange Commission on April 25, which includes a time line of the discussions between the two companies. The process began on Oct. 23, when a representative of North Point Advisors contacted MTY CEO Eric Lefebvre about a potential acquisition.
Papa Murphy’s had hired North Point to help it conduct a review of “strategic alternatives.” The take-and-bake pizza company publicly announced the review process in a Nov. 7 call with shareholders, and mentioned the possibility of selling the business, but did not elaborate.
Throughout the negotiating process, Papa Murphy’s and MTY each made repeated requests in pursuit of a specific objective: Papa Murphy’s wanted a higher sale price, and MTY wanted a guaranteed period of exclusivity in which Papa Murphy’s would not solicit other bids.
MTY sent a letter to North Point on Nov. 19 indicating its interest, with an initial suggested sale price of $7.25 per share, subject to due diligence. The company also requested a 60-day period of exclusivity, which Papa Murphy’s did not agree to grant.
The due diligence process took about three months, and included trips to meet with Papa Murphy’s executives in Vancouver. MTY submitted a revised indication of interest on Jan. 25, dropping its proposed purchase price to $6.10 per share based on the results of its due diligence.
Three days later, North Point asked MTY to increase its purchase price based on Papa Murphy’s better-than-expected results for the fourth quarter. On Feb. 25, MTY offered to increase its purchase price to $6.35 per share.
In a Feb. 27 teleconference, MTY said it could further increase the sale price to $6.45 per share if Papa Murphy’s would grant MTY exclusivity in the acquisition process. Papa Murphy’s continued to seek a higher price, but MTY indicated in a March 5 conversation that it would not go any higher.
Papa Murphy’s made one final push for a higher sale price on March 6, and disclosed that it had received a competing offer with a higher price per share, although the details of that offer are not detailed in the SEC filing. MTY declined, and said $6.45 was its best and final offer.
The two companies’ legal teams subsequently began discussions, and Papa Murphy’s entered into a 30-day exclusivity agreement with MTY on March 22. The terms of the sale agreement were negotiated over the next few weeks and finalized on April 10.
The Vancouver-based pizza company hasn’t made any new public statements following its April 11 announcement of the proposed deal, and the company’s communications team declined to comment further when asked last week about when it was expected to be finalized.
But with federal approval in hand, it seems unlikely that anything will derail the plan.
The SEC filings indicate that MTY’s offer to purchase Papa Murphy’s shares will expire at the end of the day on May 22, and that under the terms of the purchase agreement, the acquisition will automatically commence without a shareholder vote if MTY has acquired a majority of shares by the deadline.
The MTY filing indicates that as of April 10, Papa Murphy’s had already secured support for the offer from the holders of 52 percent of its shares.
Once the deal is completed, Papa Murphy’s will be delisted from the Nasdaq and become a wholly owned subsidiary of MTY. It’s still unknown exactly how the deal will impact Papa Murphy’s corporate office in Vancouver, although MTY’s initial statement said the company looks forward to “maintaining the current support center in Vancouver.”
MTY’s filing also indicates that Papa Murphy’s corporate officers will become the officers of the new MTY subsidiary company. On April 30, Papa Murphy’s submitted an amendment to its 2018 Form 10-K SEC filing, which included letters detailing retention agreements for CEO Weldon Spangler and Chief Financial Officer Nik Rupp.
Papa Murphy’s stock rallied in the hours following the April 11 announcement, quickly approaching the proposed $6.45 per share sale price, and has remained within a few cents of that amount for the past three weeks.
The news was apparently less well-received among MTY’s shareholders. The company’s stock fell from $44 on April 10 to $39.53 on April 11. It bounced partway back in the next two days and then leveled out, and closed on Wednesday at $41.82, its highest point since the deal was announced.
