NPC International Seeks Approval From Bankruptcy Court
Source: Costar
The biggest franchisee of Pizza Hut and Wendy’s restaurants, NPC International, has struck an $816 million deal to sell itself to Flynn Restaurant Group in a move that is expected to affect more than 1,300 U.S. locations.
NPC International is asking the Bankruptcy Court for the Southern District of Texas in Houston to approve a stalking horse asset purchase agreement to help set a price threshold with San Francisco-based Flynn Restaurant Group, which operates over 1,200 Applebee’s, Taco Bell, Panera Bread and Arby’s restaurants.
The deal includes more than 1,300 Pizza Hut and Wendy’s restaurants across the country, as well as NPC International’s shared services center in Pittsburg, Kansas, according to a statement. A breakdown of the Pizza Hut and Wendy’s locations was not immediately available.
The restaurants are expected to remain open during the bankruptcy process. NPC International previously told the court that the Pizza Hut assets were valued at $325 million and the Wendy’s assets were valued at $400 million, according to court filings.
The sale is subject to the court’s approval and whether any higher or better offers emerge. Other than Flynn Restaurant Group, NPC International said in court filings it has multiple potential offers to sell parts of the company, including 32 active potential buyers conducting due diligence on the Pizza Hut division and 26 active potential buyers on the Wendy’s division.
A court hearing to approve Flynn Restaurant Group as the stalking horse bidder is scheduled for Nov. 13, and a sale hearing is scheduled for Dec. 4. Flynn Restaurant Group plans to continue employing substantially all of NPC International’s 30,000 employees, which was a critical aspect of the deal, according to the statement.
“These are great assets and iconic restaurant brands, and we are confident we can maximize the long-term value of the business,” said Greg Flynn, founder, chairman and CEO of Flynn Restaurant Group, in the statement.
The restaurant industry is trying to adapt to the coronavirus financial fallout from dining restrictions that is driving restaurant business consolidation and could lead to more jointly run restaurant properties. Atlanta-based Inspire Brands, which has 11,000 global locations including Arby’s, Sonic Drive-in and Jimmy John’s, plans to buy Dunkin’ Brands Group and its 12,500 Dunkin’ locations and 8,000 Baskin-Robbins stores in a deal valued at $11.3 billion.
Flynn Restaurant Group could potentially compete with the parent company of Wendy’s, which reportedly is considering buying nearly 400 Wendy’s restaurants. Gunther Plosch, Wendy’s chief financial officer, told investors during an earnings call Nov. 4 that the company was exploring “the possibility of acquiring one or two markets” from NPC International “as part of a consortium bid” with a group of prequalified franchisees.
Wendy’s has signaled it could oppose the NPC International sale to Flynn Restaurant Group because it views Arby’s and Panera Bread restaurants as a direct competitor, according to the Wall Street Journal. Wendy’s, as well as the corporate parent company of the Pizza Hut brand, Yum! Brands Inc., have previously sought to have more control over the bankruptcy sale process and extend the deadline for placing bids on the assets.
Last week, the bid deadline for the Wendy’s assets was extended by eight days and is now Nov. 18, according to court filings.
Leawood, Kansas-based NPC International is the biggest franchisee of Pizza Hut Inc., a chain based in Plano, Texas, and a subsidiary of Yum! Brands, and is the biggest Wendy’s franchisee with about 390 restaurants.
Before NPC International filed for Chapter 11 bankruptcy protection in July, citing the pandemic and $903 million in debt, the company had 1,227 Pizza Hut locations. Since then, NPC International has been gradually closing underperforming Pizza Hut locations in addition to selling individual leases at closed restaurants.
The franchisee has closed 300 Pizza Hut locations under an agreement struck in August with Yum! Brands, said David Gibbs, Yum! Brands CEO, in an Oct. 30 earnings call with investors. More than half of those locations were focused on sit-down, dine-in operations, Gibbs said. The brand is shifting to so-called express units that emphasize faster pickup and takeout.
NPC International agreed to pay corporate parent Pizza Hut Inc. about $11.65 million in royalties and other advertising fees to close the unprofitable restaurants, according to court documents.
The potential sale to Flynn Restaurant Group or another buyer would not impact NPC International’s plan to sell 163 leases at closed locations that are being marketed for sale by A&G Real Estate Partners, a spokeswoman for NPC International said in a phone call.
Potential buyers would purchase the right to take over the leases as so-called straight leasing assignments, rather than sign a sublease with NPC International, said Joe McKeska of A&G Real Estate Partners, in an email to CoStar News. It wasn’t immediately clear how many bidders emerged for those leases by the Oct. 23 deadline and McKeska could not immediately be reached for comment by email or phone.
Yum! Brands, Pizza Hut Inc. and Wendy’s did not immediately respond to emails and phone calls requesting comment on the deal with Flynn Restaurant Group.
Pizza Hut’s U.S. stores are continuing to see gains with same-store sales rising 1% in the third quarter year to date, according to Yum! Brands. Off-premise sales shot up 21% over the previous quarter as customers increasingly favor takeout options during the pandemic, according to Yum! Brands.
Meanwhile, the Ohio-based corporate parent of Wendy’s said its U.S. same-store sales were up slightly in the third quarter by about 0.9% year over year, according to its most recent earnings statement.
