Shares of Buffalo Wild Wings (NASDAQ: BWLD) rose 6% on Tuesday after the chicken wing chain agreed to be acquired by privately held Arby's Restaurant Group in a $2.9 billion deal.

The deal, which values Buffalo Wild Wings at $157 per share, is expected to close during the first quarter of 2018. Arby's will pay a premium for Buffalo Wild Wings at 38 times earnings, compared to the average P/E of 27 for restaurant industry stocks.

The key facts

Buffalo Wild Wings was once a Wall Street darling, but investor enthusiasm waned after the company posted eight straight quarters of declining year-over-year sales growth. Its margins were also weighed down by higher wing costs -- which rose a whopping 26% annually last quarter.

Analysts expected the company's revenue to rise 4% this year, but for its earnings to drop 3%. The stock has declined more than 20% from its all-time high above $200 in late 2015. Buffalo Wild Wings CEO Sally Smith stated, "We are excited about this merger and confident Arby's represents an excellent partner for Buffalo Wild Wings."

Arby's is majority-owned by affiliates of Roark Capital Group. Another significant investor is Wendy's (NASDAQ: WEN), which owns an 18.5% stake. Shares of Wendy's rallied nearly 4% after the merger was announced.

The halo effect

Arby's takeover of Buffalo Wild Wings caused many other restaurant stocks -- including Brinker International (NYSE: EAT), Cheesecake Factory (NASDAQ: CAKE), and Zoe's Kitchen (NYSE: ZOES) -- to rally sharply on speculation that they could be taken over in similar market consolidating moves.

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The author(s) may have a position in any stocks mentioned.

 

Leo Sun has no position in any of the stocks mentioned.

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