RBI’s Subway Talks Reportedly Fell Apart Over Valuation

This is an English adaptation of a FoodBud historical article originally published on November 29, 2021.

Subway was being discussed at a reported valuation of US$8 billion to US$10 billion, far below the roughly US$50 billion valuation cited around a potential listing in 2012.

Restaurant Brands International, the parent company of Burger King and Tim Hortons, reportedly held informal talks earlier in 2021 about acquiring Subway. According to the New York Post, the main point of disagreement was price.

Sources cited in the report said the gap between RBI and Subway was not only about valuation. There were also tensions involving Elisabeth, widow of Subway co-founder Fred DeLuca. Two companies each control 50% of Subway, and it was unclear which side had been seeking a higher sale price.

RBI shifted to Firehouse Subs

After the Subway talks failed, RBI moved to acquire one of Subway’s rivals, Firehouse Subs. RBI planned to buy Firehouse Subs in an all-cash transaction valued at US$1.1 billion.

Firehouse Subs is a sandwich-focused quick-service chain founded in 1994 by former firefighters and brothers Chris Sorensen and Robin Sorensen.

At the time, Firehouse Subs had about 1,200 restaurants. Its systemwide sales were expected to rise to around US$1.1 billion for the year. Around 79% of its restaurants were operated by franchisees across 46 U.S. states, Canada, and other markets, supported by a strong franchise operating system.

An RBI spokesperson said the Firehouse Subs acquisition was driven by the brand’s significant growth potential. On Subway, RBI declined to comment. A Subway spokesperson said the company was not for sale.

Subway’s sale question became more complicated

Subway’s sales momentum had accelerated after its Eat Fresh Refresh campaign launched in summer 2021. The company expected full-year 2021 sales to beat prior expectations by more than US$1 billion.

One person involved in the RBI-Subway deal discussions pointed to Subway CEO John Chidsey’s background: before joining Subway two years earlier, Chidsey had been CEO of Burger King before Burger King was sold to RBI. The same person argued that Chidsey’s tougher approach toward franchisees looked like preparation for a sale.

Another complication was the death of Subway’s last surviving founder, Peter Buck, on November 18, 2021, at age 90. His death added uncertainty because the contents of his will were not publicly known.

During Fred DeLuca’s half-century running Subway, the company had done little succession planning. After his death, his sister Suzanne Greco took over as CEO and later resigned in 2018 after a difficult transition period.

Fred DeLuca’s son Jonathan served on the board but did not hold an operating role. Peter Buck’s son Christopher was also not operationally involved in Subway and mainly ran the nonprofit media organization Retro Report.

Potential buyers narrowed

Business Insider reported in April 2021 that both RBI and Inspire Brands, owner of Buffalo Wild Wings and Arby’s, had conducted due diligence on Subway.

With RBI out, Subway’s sale prospects appeared less certain. Inspire Brands looked like the most likely buyer, although it had already acquired Subway competitor Jimmy John’s in 2019.

Yum Brands, parent company of KFC, was also mentioned as a possible acquirer. Some industry observers, however, argued that buying Subway might not be a good fit for Yum Brands because it could weigh on the company’s share price.

A large system facing pressure

At its peak, Subway had nearly 42,000 restaurants globally, more than any competitor. McDonald’s had about 39,000.

After roughly half a century of growth, however, Subway was facing tougher conditions. In 2012, Subway had more than 25,000 U.S. restaurants and was expanding quickly. By 2021, that figure had fallen below 22,000. In recent years, many Subway franchisees had been losing money, and more than 1,000 franchised stores were closing each year.

The latest reports at the time said Subway had nearly 22,000 U.S. restaurants the prior year, while franchise revenue fell from US$834 million in 2019 to US$634 million.

Sources said Subway’s valuation stood at US$8 billion to US$10 billion, far below the US$50 billion valuation linked to its possible 2012 listing. Insiders said Subway could see potential benefits either from waiting to sell or from seeking a public listing.

Note: acquisition, IPO, valuation, and forward-looking sales figures are historical and reflect reporting from 2021.