Choose two (2) public corporations in an industry with which you are familiar – one (1) that has acquired another company and operates internationally and one (1) that does not have a history of...

Industry: Fast Food Restaurant Chain
Industry: Fast Food Restaurant Chain
Two Companies Chosen:
1. International company with a history of acquisition/merger: McDonalds Corporation
2. US Based Company operating Solely: Sonic Drive-In
McDonalds Corporation
Traded on: NYSE; as: MCD
(Acquisition of Donato’s Pizzeria in 1998)
Between years 1998 and 2000, McDonalds made a few notable acquisitions and investments, namely, investing in Chipotle Mexican Grill, and acquiring of Boston Market and Donato’s Pizza. (Tammy C – McDonalds Acquisitions)
Boston Market’s parent company, Boston Chicken Inc had a filed Bankruptcy, after which McDonalds walked in and acquired this company and began its restructuring. This took place in 2000 and costed the company around $174 million. While many of its restaurants continued operating, some where converted into McDonalds or Donatos Pizza restaurants. The acquisition of Boston Market was a part of the Corporation’s domestic growth plan. Looking at its reason for Chipotle Mexican Grill, it mainly looked at expansion of its non-hamburgers sector. But in 2006, McDonalds divested its investment form Chipotle Mexican Grill as well. But it could had been a most profitable divestment, had the corporation waited for its divestment decision for a few more years, as the stock of Chipotle today trades at $340.8. (Chipotle Mexical Grill: Investor Relations)
Looking at the decision of acquiring Donatos in 1998, I observed that the company was being watched. It was not just Donatos alone, but other fast food chains which were small at that time and had huge growth potentials. McDonalds was looking to diversify its operations in order to compete with the three major competitors at that time, KFC, Pizza Hut and Taco Bell. McDonald’s executives saw the pizza business as one of the best choice and closest alternatives to its hamburgers segment. The growth of pizza industry could not be left out, that too with the scale of activities McDonalds was capable of carrying out. It is reported that they studied the operations of not just Donato but 61 other companies as well before they made this decision. There was an undisclosed agreement between the Vice President of McDonalds and the founder of Donatos, Mr. Grote. An interest of McDonalds in acquiring Donatos was expressed and an agreement to sell 146 units of Donatos was made. Though some argue that the amount was approximately $150million, the amount was not disclosed in the public for real. This made Donatos a wholly subsidiary of McDonalds Corporation.
McDonald's had previously tried entering the pizza segment, offering slices of pizza at thousands of its hamburger restaurants. The experiment had failed. It was then realized that they needed the experience of someone in making and selling pizza, which could help them in their diversification.
As mentioned that roughly in the same time, McDonalds had acquired 20% interest in Chipotle Mexican Grill, it also completed its an other acquisition of Aroma Ltd. Together the three subsidiaries - Donatos, Chipotle, and Aroma--formed McDonald's' specialty food division. McDonalds in the beginning give much of its attention to Chipotle but Donatos too was expected to enjoy the deep pockets of McDonalds, and considerable growth was forecasted. In the fall of 1999, McDonald's planned to open 75 Donatos restaurants. This was the first year itself, and in the second year they doubled the expansion rate. McDonalds, as rumored by quite a few, also planned to take Donatos at an international level.
In 2000, the official title was changed from Donatos Pizza Corp. to Donatos Pizzeria Corp. and several new restaurants were opened covering areas in Cleveland, Indianapolis and Atlanta. The company increased its expansion rate and by next year August it had more than 180 restaurants covering seven states. After a few months, expansion in Philadelphia was announced, as a strategy of expansion in northeastern United States.
After this the expansion rate slowed down, McDonalds was now more keen on expanding its Boston Market division, and plus, new pizza formats were tried wit Donatos. This experiment was not that successful but since, McDonalds aimed at diversification, and product differentiation, it did what it had to. Despite this slow growth, Donatos did make a huger leap in geographical terms, expanding to other states and countries like Germany from just the seven states previously. Domestically, the company introduced a new fashion of telephone ordering system in its dine-ins where the customers could just pick up the receiver and pace its order. As mentioned before, more growth was expected from Donatos since McD had acquired its special food division in the first place for expansion and diversification purpose. Hence Donatos was expected to benefit from the vast financial resources of McDonalds and it desire for growth. (International Directory of Company Histories, Vol. 58. St. James Press, 2004)
However in 2003 itself, McDonalds planned to divest its interests from Donatos and sell its back to its former owner, but only to know that the situation had gotten worse from the time Grote had sold it McDonalds. James Grote then admitted that he could have kept his then rapidly growing company. He agreed that he had now taken a bunch of liabilities but he had a belief that the company still was in a position to be able to be handled. McDonalds could had taken it slower, tried more stuffs out, as its main intention in the end was diversification, so why not aim at it directly. It isn’t sure how much Donatos had lost in those four years, one thing we know for sure is that McDonalds had invested heavily in the development, equipment and research of Donatos. In the end, the filings indicated a write off of $237million as a loss of sale of Donatos back to Grote.
(Second Act, Lisa Bertagnoli)
In this whole strategy of McDonalds of diversification in other segments of...