ACQUISITION

Panera Bread Company and Cosi Company



Panera Bread Company and Cosi Company

Introduction

The food manufacturing industry (restaurants and retail food stores) is one of the largest manufacturing sectors in the US. The rising energy and raw material prices have produced a new challenge for F&B manufacturers as the market situation makes it hard to fully offset rising costs by price rises. While some manufacturers have raised the prices for their products, they have a limited ability to do so in the competitive North American market. Higher input costs, coupled with pressure to keep prices low, is squeezing the bottom line of many companies in the industry, setting some up as takeover targets, while at the same time causing potential strategic buyers to tighten their belts.

Despite the softness in overall global economic conditions, merger and acquisition activity in the industry remained firm as companies continued to strengthen their portfolios by enhancing product lines, streamlining operations and penetrating lucrative market niches (Mergent Investor Edge, 2011). A few leading companies acquired their business counterparts in a quest to diversify their product lines, expand their geographical markets, streamline operations, enhance economies of scale and improve sales growth and profitability (IBIS World, 2011a). This paper presents an analysis of Panera Bread Company, and Cosi Company, operating in food chain restaurant industry. Main objective of the paper is to present an acquisition analysis of competitor' company in food chain restaurant industry. This report focuses on the acquisition of Cosi Company by the Panera Bread Company. Following part of the report presents an analysis of the industry in which both companies are operating.

Industry Analysis

The global food crisis once again reared its ugly head in early 2011, precisely three years after the food and financial crisis in 2008. Concurrently, climate change and natural disasters disrupted production, leading to falling commodities supplies. Higher demand, combined with weaker supply, drove commodities prices higher. For example, concerns about poor harvests in coffee producing countries like Mexico and Columbia exerted upward pressures on coffee and cocoa prices (IBIS World, 2011a). Droughts in Russia and Ukraine ruined wheat crops and they banned wheat exports, resulting in rising wheat prices. The rise in major raw materials prices such as milk, crude palm oil, corn, barley and wheat flour, continued to squeeze margins for the operators in the industry (IBIS World, 2011b).

More F&B companies turned to futures and options to protect against sudden commodity price movements. US food and beverage (F&B) companies responded to the challenging market environment with selective price rises, by consolidating facilities and eliminating slow moving or low-margin product lines. The baking food industry faced stern challenges from 2006 to 2011 (Mergent Investor Edge, 2011). The increased availability of substitute foods and rapidly changing dietary trends and lifestyle patterns significantly threatened sales and growth prospects. Furthermore, wildly fluctuating commodity prices, especially for flour and sugar, put additional pressure on production costs and squeezed profit. In an effort to combat fierce volatility, producers attempted to boost production efficiency through various means (David, ...