In re Appraisal of Panera Bread Co.
| Decision Date | 31 January 2020 |
| Docket Number | C.A. No. 2017-0593-MTZ |
| Parties | IN RE APPRAISAL OF PANERA BREAD COMPANY |
| Court | Court of Chancery of Delaware |
Samuel T. Hirzel, II, Elizabeth A. DeFelice, and Melissa N. Donimirski, HEYMAN ENERIO GATTUSO & HIRZEL LLP, Wilmington, Delaware; Steven M. Hecht, Michael T.G. Long, Jarett N. Sena, Natalie F. Dallavalle, Frank T.M. Catalina, Edoardo Murillo, and Jonathan M. Kass, LOWENSTEIN SANDLER LLP, New York, New York; Attorneys for Petitioners.
Paul J. Lockwood, Jennifer C. Voss, Jenness E. Parker, Alyssa S. O'Connell, Kaitlin E. Maloney, Daniel S. Atlas, Bonnie W. David, and Andrew D. Kinsey, SKADDEN ARPS SLATE MEAGHER & FLOM LLP, Wilmington, Delaware; Attorneys for Respondent.
Zurn, Vice Chancellor.
In this appraisal action, I must determine the fair value of each share of the subject company on the closing date of its acquisition. I find that the process by which the company was sold bore several objective indicia of reliability, which were not undermined by flaws in that process. I therefore find that the deal price is persuasive evidence of fair value, and give no weight to other valuation metrics. I deduct some synergies, but find others were not adequately proven. I undergo that synergies analysis solely to fulfill my statutory mandate, rather than to effectuate any transfer of funds between the parties, because the company prepaid the entire deal price and has no recourse for a refund under the appraisal statute.
This appraisal action generated an extensive record. During six days of trial, the parties introduced 1,336 exhibits and lodged seventeen depositions in evidence.2Five experts and six fact witnesses testified live. These are the Court's findings based on a preponderance of the evidence.
Respondent Panera Bread Company ("Panera" or the "Company") is a national bakery-cafe concept in the United States and Canada.3 Panera is a corporation organized and existing under the laws of Delaware, with headquarters in St. Louis, Missouri.4 Until July 18, 2017, Panera's stock was listed on the NASDAQ stock exchange under the symbol "PNRA."5
On that date, JAB Holdings B.V. purchased Panera for $315.00 per share.6 That entity is a private limited liability company incorporated under the laws of the Netherlands that indirectly has a controlling interest in JAB Holding Company, LLC.7 JAB Holding Company, LLC is a private limited liability company incorporated under the laws of Delaware and headquartered in Washington D.C. that indirectly has held a controlling interest in Panera since the acquisition.8 JAB Holding Company S.à.r.l. has an ultimate controlling interest in JAB Holdings B.V.,JAB Holding Company, LLC and Panera.9 I refer to all of these entities collectively as "JAB."
In the wake of JAB's acquisition, certain dissenting Panera stockholders ("Petitioners" or "Dissenting Stockholders") are entitled to an appraisal of the fair value of their Company shares in accordance with their demands.10 Petitioners hold 785,108 shares of Panera's common stock.11 Petitioners include Short Hills Capital Partners, holding 35,800 shares of Panera common stock;12 Weiss Asset Management, including 2017 Arlington, LLC, holding 154,669 shares of Panera common stock;13 Canyon International LLC, holding 31,794 shares of Panera common stock;14 and Yellowstone Global LLC, holding 47,692 shares of Panera common stock.15 Each of the Petitioners demanded appraisal before the vote on the merger, held the appraisal shares through the merger date, and maintained their appraisal demand.
Relevant non-parties include Panera board members Domenic Colasacco, Fred K. Foulkes, Larry J. Franklin, Diane Hessan, Thomas E. Lynch, William W. Moreton, Ronald M. Shaich, Mark Stoever, and James D. White.16
Shaich founded Panera in 1981.17 He served on the board from 1981 to December 2018 in various capacities, including Chairman, Co-Chairman, Executive Chairman, and Non-Executive Chairman.18 Shaich served as Chief Executive Officer from 1984 to May 2010, when he stepped back from the Company to co-found an organization called "No Labels," which he hoped would reduce partisanship in American politics.19 During this time, Shaich remained Panera's largest stockholder and Executive Chairman, and Moreton served as CEO.20 In 2012, Moreton had a family issue and asked Shaich to return to a greater leadership position.21 Shaich agreed and served as Co-Chief Executive Officer, along with Moreton, from March 2012 to August 2013.22 At that time, Moreton stepped down as Co-Chief Executive Officer, and Shaich resumed his role as sole Chief ExecutiveOfficer until January 1, 2018.23 The market and the restaurant industry both recognize Shaich as a visionary.24
Moreton joined Panera's board in May 2010, after serving as Executive Vice President and Chief Financial Officer from October 1998 to March 2003 and Executive Vice President and Co-Chief Operating Officer from November 2008 to May 2010.25 Moreton also served as President and Co-Chief Executive Officer from March 2012 to August 2013, Chief Financial Officer (Interim) from August 6, 2014 to April 15, 2015, and Executive Vice Chairman from August 2013 to July 18, 2017.26
Colasacco, the lead independent director, served as an outside director along with directors Hessan, Foulkes, Franklin, Lynch, Stoever, and White.27
Panera's relevant management includes Blaine Hurst, who began serving as Panera's Chief Executive Officer after Shaich left that post in January 2018.28 Prior to that time, Hurst served as Executive Vice President and Chief Transformation andGrowth Officer from December 2010 to December 2016.29 Then, Hurst served as Panera's President from December 2016 to January 2018.30
Michael Bufano has served as Panera's Chief Financial Officer, since April 2015.31 Bufano also served as the Vice President of Planning from July 2010 to August 2014.32
Andrew Madsen was Panera's President from May 2015 to December 9, 2016, when he left the Company.33
In 1980, Shaich founded a single 400-square-foot cookie store.34 That store would eventually become Panera. In 1982, Shaich merged the cookie store with a small regional bakery called Au Bon Pain.35 That entity purchased the Saint Louis Bread Company in 1987.36 Shaich took this company public in 1991,37 rebranded the Saint Louis Bread Company as Panera in 1997, and divested the Au Bon Paindivision in 1999.38 After the divestiture, Shaich changed the company's name to Panera Bread Company.39 After divesting Au Bon Pain, Panera stock traded at $6.00 per share.40
Panera pioneered a new restaurant segment called "fast casual," which found a niche between "quick service restaurants like McDonald's and Wendy's and restaurants like that and casual dining, full sit-down service."41 From 2000 to 2010, Panera expanded rapidly into a national restaurant chain.42 Panera operated in three segments: company bakery-cafe operations, franchise operations, and fresh dough and other product operations.43 By 2004, Panera's stock was trading around $30.00 per share, and by 2010, it was trading around $70.00 per share.44
Despite the Company's growth, by 2010 or 2011, Shaich felt "great distress" because Panera's same store sales were weakening and market share gains slowed.45Increasingly, Panera faced competitive pressures and needed to differentiate for future growth.46 In response to these pressures, Shaich spent his time as Executive Chairman focusing almost exclusively "on a range of strategic and innovation efforts for Panera."47 During this time, Shaich wrote "the Amazon memo" on how he would compete with Panera if he were not part of the Company.48 His vision focused on changing the guest experience, creating a new ordering system, and providing a delivery service.49 After discussing these initiatives with Moreton, Shaich led the effort to prototype these ideas during the 2010-2012 period before re-assuming a management post as co-CEO in 2012.50
In 2013, Panera signaled to the market that it was "deploying significant transaction-driving initiatives."51 By early 2014, Fortune magazine featured Panera's "big bet on tech," detailing how Shaich's early prototypes had developed into new company initiatives.52 After launching that technology in fourteen cafes,the Company formally announced the Panera 2.0 initiative in April 2014.53 Panera 2.0 offered "a series of integrated technologies to enhance the guest experience"54 through "new mechanisms for ordering, payment, food production, and, ultimately, consumption."55 Panera 2.0 enhanced ordering through Rapid Pick-Up, fast lane kiosks, and online/mobile ordering.56 Panera also committed to "operational excellence" with new production equipment and systems to increase capacity and accuracy.57 Along with these changes, Panera focused on "activat[ing] innovation in store design."58 To adopt these initiatives, Hurst "create[d] a 'digital flywheel' whereby all systems and consumer touchpoints—point of sale (PoS), back of house, integrated customer data, big customer data, one-to-one marketing—are interconnected for operational gain."59
These initiatives rolled out in stages. In 2014, the Company kicked off Panera 2.0 with Rapid Pick-Up, an advanced ordering system.60 Over the next two years,the Company rolled out the remaining Panera 2.0 initiatives to all company-owned bakery-cafes.61
Panera developed other initiatives during this period of innovation. In 2013, the Company rolled out two initiatives including Panera at Home, providing consumer packaged goods, as well as Panera catering hubs, which were attached to bakery-cafes.62 In 2015, Panera launched its "Food As It Should Be" campaign, developing "clean food" without "artificial colors, flavors, preservatives, and sweeteners."63 In 2016, Panera rolled out its national delivery program.64
While leading Panera through these initiatives, in early ...
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