Jollibee's $540M US acquisitions helped wipe $2.2B off its market value

By March 2020, Tony Tan Caktiong's Jollibee Foods Corp. — the Philippine fast-food empire that trounced McDonald's in its home market and controlled about 56% of the country's US$5 billion fast-food market — was paying for its American gamble. The company had spent US$540 million buying Smashburger and Coffee Bean & Tea Leaf Co., and even as the two money-losing chains dragged on earnings, the coronavirus outbreak threatened sales.

The market's verdict was brutal: Jollibee shares dived more than 18% in 2020, adding to losses in 2019 — their worst in two decades. The slide wiped US$2.22 billion off the company's market value since the end of 2018, a reality check for a tycoon, the son of poor Chinese immigrants, who had chased rapid growth abroad through acquisitions.

The strategy had widened the group's footprint to almost 6,000 stores in 35 countries, but investors remained unimpressed by the payoff as Smashburger and Coffee Bean continued to burn cash. 'Even if the drag from its acquisitions has plateaued, sentiment will remain bearish until we are certain that the impact of the virus has peaked,' said Noel Reyes, chief investment officer at Security Bank Corp. in Manila, which helps manage 58 billion pesos.

US$2.22 billion wiped off market value since the end of 2018, after shares fell 18% in early 2020 on top of 2019's worst stock performance in two decades.

The two US acquisitions were losing money at the moment Jollibee could least afford drag on earnings.

Growth-by-acquisition widened the footprint to 6,000 stores in 35 countries without producing a payoff investors could see.

Jollibee's home-market dominance set a high baseline; any US missteps showed up against a bellwether's multiple.

The pandemic arrived before the acquisitions had a chance to prove themselves, stacking a demand shock on a strategy already in doubt.

Buying your way into a big market only works if the targets stop burning cash; overseas trophies that drag earnings can reprice even a dominant home franchise.

As of the March 2020 report, the virus's impact was not yet fully quantified, with Security Bank's Reyes expecting bearish sentiment to persist until the outbreak peaked. In China, where the outbreak started, the group's 15 brands operated 389 restaurants accounting for 7.4% of sales — the country hosted 15% of its overseas outlets.