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Private equity group makes offer to buy Krispy Kreme
Journal file photo
Krispy Kreme's flagship store on Stratford Road.
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Published: June 30, 2008
A mysterious private-equity group in Charlotte said today that it has sent an unsolicited offer to buy Krispy Kreme Doughnuts Inc. for more than $500 million.
MGL Asset Management Group LLC said it faxed the offer of $7.25 a share last night to James Morgan, the chairman and chief executive of Krispy Kreme. The offer is valued at nearly $2 a share more than Krispy Kreme's closing share price of $5.27 a share on Friday.
MGL said it would assume Krispy Kreme's debt in the transaction.
Krispy Kreme did not immediately respond to a request for comment on the offer.
An Internet search on MGL Asset Management did not provide clarity on the company, and some financial analysts said today that the offer sounds suspicious.
MGL said in its statement that it is a diversified private equity group "having facilitated more than $100 million in transactions." According to the N.C. Secretary of State's Web site, MGL Asset Management LLC was formed on Jan. 23.
Dee Guess, the managing director of MGL, is a native of Winston-Salem, according to the statement. Guess said he intends to begin discussion with Krispy Kreme's major shareholders "in coming weeks."
When asked via email on questions being raised about the legitimacy of the offer, Guess responded with another short statement.
"Our offer is a legitimate offer and it's a transaction that we've been considering for quite some time. We are hoping that Krispy Kreme's board will welcome the opportunity to make this transaction work,'' he said in the email. " I decline any further comments."
When MGL's number in Charlotte was called, callers hear a brief recorded greeting and then are disconnected. MGL's Web site — www.mglasset.com — is very thin on information and has no detailed information about its management and board of directors.
On the Web site, MGL said it has more than $100 million under management. It also said that its principals and partners have about 50 years of combined management experience.
Tony Plath, a finance professor at UNC Charlotte, said he was not sure the offer or company making it was legitimate.
"I smell a rat here ... anybody that feels it necessary to tell me just how sophisticated their organization is on their three-page Web site doesn't sound all that sophisticated at all,'' he said. "And, when the contact information says 'management@mglasset.com,' that too, sounds a little bush-league to me."
The offer by MGL comes about three weeks after Krispy Kreme posted its first profitable quarter in 3½ years and two weeks after Morgan provided an optimistic financial forecast despite the company likely experiencing what he called some "unevenness" in quarterly performances for up to two years.
"There is no shortage of challenges ahead of us," Morgan said at the shareholders meeting.
Over the past four years, Krispy Kreme has struggled to adapt to the changing tastes of U.S. consumers. It is still being investigated by federal authorities about past accounting practices.
In January, the company replaced Daryl Brewster, its president and chief executive, with Morgan. And higher prices for raw materials and gas are having an influence on the company and its franchisees.
"But we believe we have even more opportunities, and we will meet those challenges head-on and overcome them," Morgan said.
Investors and analysts appear to be gaining confidence in the company with Morgan at the helm and the international franchise push. The share price has more doubled than since Morgan took over — jumping from $2.32 a share on Jan. 15 to $5.27 on Friday.
It was trading down 15 cents to $5.12 a share at 11:45 a.m. today.
Ryan Fuhrmann, an investment analyst and writer for The Motley Fool, said earlier this month that Krispy Kreme's troubles "stemmed largely from its own overindulgences in store expansion, along with its troublesome relations with franchisees. But judging from the first-quarter results, the latest management team has a firm grasp on how to get Krispy Kreme back on the path toward consistently positive financial performance."
MGL said it plans to finance the deal with a combination of debt and equity through a syndication once final terms for the deal are reached.
Guess said in his initial statement that he plans to have Krispy Kreme remain a publicly traded company. It would "issue a new class of stock to selling shareholders that will be non-voting, but give them the potential to experience upside in the company over time."
MGL said it plans to put in a new management team "that will include executives from some of the major consumer food corporations in America, some of whom are principals with MGL."
MGL said its goal would be to have the deal closed within 90 days from the date of the letter addressed to Krispy Kreme.
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