Restaurant franchisor Foodtastic offers $982-million for MTY

Foodtastic Inc., the Canadian restaurant franchisor behind brands such as Milestones, Freshii, and Pita Pit, is going hostile with a multimillion-dollar takeover offer for MTY Food Group Inc. MTY-T

The franchisor said it was taking its bid of $43 per share in cash directly to MTY shareholders after MTY’s board refused to engage with the company in substantive talks. The proposal, worth about $982-million, represents a 32-per-cent premium to the MTY’s closing share price on Oct. 30.

“MTY is a great company with excellent opportunities, but it has unfortunately not lived up to its full potential in recent years,” Foodtastic Chief Executive Peter Mammas said in a statement Tuesday. “We are confident that MTY’s shareholders will recognize the compelling value of our proposed transaction and that it represents a superior path forward to MTY’s stand-alone strategy.”

News of the bid will plunge MTY into renewed uncertainty and put it back in play. It comes the same day the company, known for chains including Thai Express, Wetzel’s Pretzels, and Manchu Wok, replaced its CEO.

Eric Lefebvre is stepping down by mutual agreement effective immediately after a roughly eight-year tenure, MTY said in a statement. Victor Mandel, a current MTY director, was named to replace him. The company gave no explanation for the leadership change.

Montreal-based MTY ended a nearly year-long strategic review Oct. 9 with a decision to go it alone, saying it would refocus the business and potentially sell some of its 80 brands. The company subsequently announced a big 35-per-cent dividend hike.

The review involved hiring financial advisers to evaluate potential strategic alternatives, including a sale of all or part of the company. MTY said it engaged with a range of interested parties and considered a broad set of alternatives, concluding that the most compelling path forward was to speed up its existing strategy, “with a sharpened focus on efficiency, simplification, and disciplined capital allocation.”

Foodtastic first communicated its proposal to MTY in writing six days later on Oct. 15. It said it then reiterated it on Oct. 20, “only to be repeatedly rebuffed” by MTY with no explanation.

Foodtastic’s Mr. Mammas said in a letter to MTY’s board of directors published Tuesday that its offer is greater than the one-year share price target for MTY calculated by every major Canadian bank analyst. The suitor said MTY’s EBITDA has been in continuous, steady decline and is better off in the hands of a private owner.

Launched by Hong-Kong émigré Stanley Ma with one Tiki Ming restaurant in Montreal in 1983, MTY has ballooned to more than 80 banners at 7,000 different locations in Canada, the United States and abroad. It makes most of its profit from franchising fees and royalties and also operates a smaller number of its own corporate locations.

Known historically as a shopping mall food court consolidator, MTY has morphed. About three-quarters of its restaurant system sales now come from freestanding restaurants such as Baton Rouge, Barrio Queen, and Pizza Delight. The company generates most of its earnings before interest, taxes, depreciation and amortization from sales in the United States.

Mr. Ma is the company’s biggest shareholder with a 13.9-per-cent stake as of April, according to S&P Capital IQ data. The next biggest shareholder is Fidelity Investments with an 11.27-per-cent position.