Reports surfaced last month that Jack in the Box (JACK 103.30, +2.96, +3.0%) was considering the sale of its Qdoba Restaurant business to private equity firm Apollo Global Management. That speculation turned to fact this morning with the news that Apollo will purchase the Qdoba business from Jack in the Box for approximately $305 million in cash.
The sale of the business closes the chapter on Jack in the Box's strategic review of Qdoba, which also included the potential options of spinning off the business and refranchising company restaurants.
In the end, a sale of Qdoba was deemed to be the best course of action to enhance shareholder value and to meet Jack in the Box's broader goal of embracing a less capital-intensive business model. The proceeds from the sale, the company said, will be used to retire outstanding debt under Jack in the Box's term loan.
Qdoba has grown significantly since Jack in the Box acquired the business in 2003, expanding from 85 locations and $65 million in system-wide sales then to more than 700 locations and more than $820 million in system-wide sales in fiscal 2017. Qdoba is the second-largest fast-casual Mexican food brand in the U.S., trailing behind only Chipotle (CMG 313.42).
With the sale of Qdoba, Jack in the Box will be free to focus on its namesake restaurants, which form one of the nation's largest hamburger chains with more than 2,200 locations, nearly 70% of which are located in California and Texas.
Investors seem to like that consideration as shares of JACK are up 3.0% in pre-market trading following the news of Qdoba's sale to Apollo Global Management. Separately, Jack in the Box, which is a U.S.-centric business, is considered to be in a very good position to benefit from the cut in the corporate tax rate.