(Reuters) - Burger chain Jack in the Box Inc (JACK.O) said on Monday it is exploring options, including a sale, and has held talks with potential buyers, sending its shares up nearly 7 percent.
The San Diego-based company has been struggling with declining annual sales since 2016 and sold its Qdoba Restaurant Corp unit to private equity firm Apollo Global Management LLC (APO.N) earlier this year.
Evercore analyst Matt McGinley said Jack in the Box has several company specific problems, including greater exposure to West Coast where labor rates are higher and franchisee discontentment with the management’s strategy.
The company has also embarked on a restaurant remodeling program that is expected to eat into free cash flow until 2022, he said, adding these could “likely limit the premium paid and/or lower the odds of a transaction occurring”.
Jack in the Box did not disclose the parties it was in talks with, but Reuters reported last month that its suitors included private equity firms.
The company’s plans come just two months after it reached a settlement with Jana Partners to expand its board and give the activist hedge fund a say over the two board seats.
Jack in the Box operates more than 2,200 restaurants and had a market capitalization of about $2.21 billion at the day’s high.
The U.S. restaurant industry has seen a flurry of deals over the past few months, including fast-food chain Bojangles Inc’s (BOJA.O) $600 million take-private deal and drive-in burger chain Sonic Corp’s acquisition by Arby’s owner Inspire Brands for about $1.57 billion.
Jack in the Box said it would go ahead with a planned bond issue, if unable to strike a deal.
Reporting by Soundarya J in Bengaluru; Editing by Sriraj Kalluvila