Double Soy Sesame No Whip Add Avocado

I have been reading a lot about the merger and acquisition (M&A) division of many financial firms and the more aggressive sounding name for a similar part of a company, Leveraged Buy-Outs (LBO). I am all about world peace, multiculturalism, and equality of opportunity, etc. But when it comes to business, companies are not charities. I want to know more about how to create a successful LBO of another company; because, it is my opinion that Starbucks (SBUX) and Noah’s Bagels (BAGL) should become one company, exploiting the best aspects of each company to bring a better service to customers.

I worked for Starbucks a few years ago and was not really impressed with the corporate culture that it had developed for itself, so I quit. Recently Starbucks began to sell food they can heat up for customers in a really big convection oven. I have not tasted any of it, fortunately for me all the selections are non-vegetarian so I haven’t even been tempted, but I can tell it is all crap. Moreover, walking into the store used to be somewhat pleasant because I like coffee; now, it smells so bad inside that I want to sick up from the food being sold.

On the other hand, the bagels at Noah’s are really great. There is a good selection of smears (cheese creams) and there is a big selection of bagels made fresh with all sorts of good other toppings and combinations for making the bagel experience even more tasty. Yet the coffee brewed at Noah’s not only leaves something to be desired, but makes me question my affection for coffee altogether. This is where being a consumer becomes a challenge, and I don’t want to be challenged when I am gladly giving away what little money I have.

The problem with a LBO with these two companies is that Noah’s is in the red this year and has owners who would see positive cash flows only if Starbucks bought the bagel company. At this point, we would be looking at a merger and/or acquisition of Noah’s by Starbucks. This product-extension merger for Starbucks is what was supposed to happen when the breakfast food was introduced, but failed miserably, I avoid Starbucks completely because of the terrible smell that is a bad mixture of coffee, cardboard and reheated egg.

To make a sound merge decision, a key figure is a Price Earnings Ratio, Noah’s has a P/E of 2.76, meaning that investors are willing to pay less than $3 for each $1 in earnings. A very low number when compared other companies in the industry. Krispy Kreme (KKD), for example, has a P/E ratio of 80, Starbucks’ is 26, Panera Bread Company (PNRA) has a P/E of almost 30. There are other figures to consider, but just looking at the balance sheet for each company will reveal Starbucks has over 25 times the dollar amount of assets of Noah’s. Just to be clear for the mathematically challenged: Noah’s total assets are $200,000 while the total assets for Starbucks is $5.5 million.

While I am interested in finance, I can still think in terms of business and economies of scale. It would not be efficient, nor very practical to make the bagels inside the Starbucks coffee stores. There would need to be just a few adjustments to the business of each company to make everything run well enough to provide the customers with exceptional goods and services. Some may question my irritation of having to go to one store for decent coffee and another for a decent bite to eat; well, I am paying to make my life easier, so make my life easier.

First, Starbucks would do away with the mediocre selection of pastries and other products, selling the superior selection of current Noah’s Bagels stock, delivered fresh each morning from the location of the nearest current Noah’s. Next, Noah’s would install an espresso machine and employ a barista to make and serve coffee and coffee drinks in addition to the sumptuous selection of bagels and bagels sandwiches. Finally, Starbucks would begin to open new stores that better accommodate the paring of delicious bagels and finely picked and roasted coffee. Thus, a beautiful symbiosis of breakfast and sales is created.