Winnipeg Free Press

Winnipeg Free Press (Newspaper) - July 5, 2024, Winnipeg, Manitoba WINNIPEGFREEPRESS.COM ● B7 BUSINESS FRIDAY, JULY 5, 2024 Panera founder turns billionaire after Cava gains RON Shaich created Panera in the 1990s. He co-founded the No Labels political movement in 2010. But it’s his investment firm, appropriately named Act 3, that’s made him a billionaire. Shaich’s stake in Cava Group Inc., a Mediterranean fast-casual chain whose shares have skyrocketed 330 per cent since its initial public offering in June 2023, is worth US$970 million, giving him a total fortune of about US$1.6 bil- lion, according to the Bloomberg Bil- lionaires Index, which is calculating his net worth for the first time. He’s the biggest non-institutional shareholder in the company, whose market capitalization implies a valu- ation of about US$31 million per loca- tion — a staggering figure that’s stirred angst among some Cava bulls. “I’m not here to tell you what the value of the company should or shouldn’t be,” Shaich said, speaking from his Miami home office in front of a shelf lined with copies of his book, Know What Matters. Large investors are “saying that this has potential.” He will, however, tell you his views on the upcoming U.S. election, which No Labels sought to disrupt before fail- ing to field a candidate. His focus on the far-off future dic- tates his investing, the way he eats, how he runs his businesses and an in- tense dislike of activist investors. It also sparked the 70-year-old former Democratic Party stalwart’s disillu- sionment with U.S. politics, a view that only deepened as he watched the June 27 presidential debate. “There is no question that (President) Joe Biden’s patriotic duty is to step down,” Shaich said in an interview the day after Biden’s tepid debate perform- ance. “If our choices are Joe Biden and Donald Trump, it’s a sad statement for this country and it’s an injustice to the American electorate.” Shaich, who once served as treasurer of Massachusetts’ Democratic Party, has donated to Biden in the past and said he’ll support him over Trump if the incumbent doesn’t bow out. The concerns laid bare by Biden’s de- bate performance are symptomatic of the short-termism plaguing American politics and strengthening the “oligop- oly” that controls it, Shaich said. He sees its taint in capital markets, too. At Panera, the sandwich and bakery restaurant he built into the country’s dominant fast-casual chain, he fought activist campaigns on two occasions. He sold the company to JAB Holding Co. in 2017 for US$7.2 billion. He funneled a chunk of the proceeds into Act 3 Holdings, his personal invest- ment vehicle and advisory firm focused on hospitality and entertainment. Its bets include Tatte Bakery & Café, an upscale chain with a Mediterranean- inflected menu and Parisian ambiance, Cava and a social-gaming playground called Level99. In picking investments, Shaich again extols the virtue of long-term thinking. He chooses categories with sustained growth prospects and helps build the dominant brand in that niche. In the case of Cava, that’s Mediterranean cui- sine: boldly flavoured but not intimidat- ing, lots of variety and healthful with- out being spartan. In the restaurant industry — unlike, presumably, politics — domination is key. Think McDonald’s perennial edge over Burger King. Shaich is normally a skeptic of IPOs, saying in his book letting Wall Street in deprives founders of the ability to con- trol the vision for their business. His unease doesn’t extend to Cava, how- ever, which he argues was ready for its market debut thanks in part to corner- stone investors such as T. Rowe Price. Brett Schulman, the chain’s chief executive officer, rehearsed quarterly earnings calls for a year and a half be- fore Cava went public, Shaich said. In the years before the IPO, Shaich encouraged Cava to prove it resonat- ed in the suburbs. He also pushed it to grow by proposing Cava acquire Zoës Kitchen in 2018, which meant Schul- man went from overseeing 50 stores to 300 overnight. A notoriously competitive and low-margin industry, dining hasn’t minted many billionaires. There’s the Subway founders, the Cathy family of Chick-fil-A, the Ilitches of Little Caesars, Lynsi Snyder of In-N-Out Burger and the guy Shaich refers to as “Howard” (as in Schultz of Starbucks). Those that reach the upper echelons tend to be founders, which he again chalks up to their long-term perspective. “Do I like value creation? Sure,” Shaich said. “Is it what I’m really all about? No. It’s a byproduct of what I really love, which is creating a better alternative.” Shareholders haven’t always been supportive. Some Panera investors sued the company’s directors following its sale to JAB claiming Shaich rushed the deal for his own financial benefit. A judge ruled in Shaich and the other directors’ favour. — Bloomberg News DEVON PENDLETON AND DANIELA SIRTORI Hudson’s Bay Co. buying Neiman Marcus for US$2.65B, spinning it into new Saks Global entity ‘Marriage of convenience’ T ORONTO — Several North Amer- ican department stores are join- ing forces under a deal that will see Hudson’s Bay Co. buy Neiman Marcus and spin it out into a larger business along with some of its other prestige retailers. HBC’s US$2.65-billion acquisition, announced Thursday, delivers Can- ada’s oldest company ownership of Dallas-based Neiman Marcus Group, which has a network of 38 luxury de- partment stores under the Neiman Marcus and Bergdorf Goodman ban- ners. Both brands sell designer appar- el, accessories and housewares. Under the deal, Toronto-based HBC will group Neiman Marcus and Bergdorf Goodman in a new business alongside Saks Fifth Avenue and Saks Off 5th, which it has owned since 2013. The new entity will be called Saks Global and run by Saks.com chief executive Marc Metrick. The union of brands puts to rest long-standing speculation the retail- ers were on the verge of a merger and will test whether the companies are stronger together than apart. “For years, many in the industry have anticipated this transaction and the benefits it would drive for custom- ers, partners and employees,” HBC executive chairman and chief execu- tive Richard Baker said in a release announcing the deal. “This is an exciting time in luxury retail, with technological advance- ments creating new opportunities to redefine the customer experience, and we look forward to unlocking significant value for our customers, brand partners and employees.” Neiman Marcus and HBC declined interview requests to discuss the deal, which will see e-commerce goliath Amazon.com Inc. and software giant Salesforce become investors in Saks Global. The tech companies did not answer questions about whether they were taking an ownership stake in Saks Global as part of the transaction. The tie-up comes at a critical junc- ture for both the retail market and luxury brands, which have watched consumers cut back on purchases because of high inflation and inter- est rates that materialized just as businesses began to recover from the COVID-19 pandemic. At the same time, department stores have fallen out of favour amid the rise of e-com- merce and direct-to-consumer sales. As Neiman Marcus wrestled with these issues, it filed for bankruptcy protection in May 2020, but managed to survive. HBC, meanwhile, has navigated headwinds by laying off staff, clos- ing some of its stores and selling off millions in real estate in the last few years. “Bringing Saks and Neiman Marcus together would be something of a mar- riage of convenience,” Neil Saunders, managing director of GlobalData, said in a note Wednesday when U.S. publications reported a deal had been reached. “Both chains have struggled with growth, and both have concerns about their prospects.” Uniting them could deliver more “fi- nancial firepower” to negotiate with luxury brands and cut out duplicative costs, said Saunders, but “a merger does not resolve all the issues.” “Even a combined chain would not match the heft and power of the global luxury conglomerates, which would still hold most of the cards,” he said. “As such, there is a risk that the deal might end up creating an even bigger headache for Saks.” The deal will leave HBC out of the Saks Global conglomerate but see the Canadian retailer “recapitalized as a standalone entity” with significantly reduced leverage and enhanced li- quidity, a news release said. HBC will continue to wholly own its Canadian retail and real estate assets. Liza Amlani, co-founder of the Re- tail Strategy Group, predicted the transaction will result in HBC shrink- ing its footprint. “Some of the stores will close down. They’ll sell them off if they’re not profitable,” she said, noting she’s ob- served few customers and plenty of markdowns on her recent trips to the chain. She also wouldn’t be surprised if HBC decided to move to a smaller, more localized format of stores that can better generate sales. Saks Global, meanwhile, will have control over US$7 billion in real estate assets owned by HBC’s U.S. division and Neiman Marcus Group. Ian Putnam, president and chief executive of HBC Properties and In- vestments, will become chief exec- utive of Saks Global Properties and Investments, which will manage, maximize and enhance the company’s robust portfolio of assets. Metrick and Putnam will report to Baker, a real estate mogul who will serve as executive chairman of Saks Global. Baker took HBC private in 2020, in the wake of the company closing Home Outfitters and selling Lord & Taylor to fashion rental subscription company Le Tote Inc. The Neiman Marcus and HBC deal is subject to customary conditions and the companies did not reveal an expected closing date for the trans- action. — The Canadian Press TARA DESCHAMPS Manitoba First Fund invests $5M, targeting ag tech start-ups MANITOBA First Fund has made its fourth fund investment, this time tap- ping Calgary-based Tall Grass Ven- tures, which specializes in agriculture technology start-ups. MFF invested $5 million in Tall Grass, closing that fund’s inaugural raise at $32 million. In addition to the $5 million from Manitoba, Tall Grass has set aside an- other $5 million and will commit to in- vesting $10 million into early-stage ag tech companies based in Manitoba. Tall Grass Ventures already has about a dozen investments in its port- folio from across the country, but pre- viously none in Manitoba. Wilson Acton, who co-founded Tall Grass along with Chris Edwards, said the MFF investment will focus its attention that much more. “Manitoba is a tremendous opportun- ity for us,” said Acton. “We’ve looked at Manitoba before, and now with the support from Mani- toba First Fund, it becomes a no-brain- er.” Tall Grass is currently in the process of doing due diligence on a couple of firms based in the province, he added. Ken Ross, CEO of MFF, said many of the companies Tall Grass is investing in have a focus on finding innovative ways to produce agricultural products and might be more geared to the fu- ture, addressing the challenges of feed- ing a growing population and climate change. MFF’s three previous investments have been in funds that target mid- market enterprises (companies that al- ready have established businesses and revenues). Ross said MFF — which has been capitalized with a $100-million invest- ment from the provincial government — has always insisted its intentions were to invest in the whole spectrum of business development needs, including early-stage start-ups. “That’s a very important part of the fund portfolio that we are trying to put together,” Ross said. The Manitoba entity continues to look to invest in other funds that target early seed investments, to go along with the Tall Grass move, he added. “It is hard space to be successful in,” Ross said. “But we want to make sure we cover that end of the investment spectrum so that we properly address it in our portfolio of funds.” Tall Grass will set up an office in Manitoba and hire a full-time staffer, bringing its total workforce to six. Acton said the fund, which was formed in 2022 with original invest- ment from high-net worth individuals whose wealth came from prior involve- ment in the agricultural industry, has already invested about one-third of its capital and needs to save that much and more for add-on investments. In addition to making its investments go a long way by investing in the early stages, it will also provide management support, which can be its own form of investments in some cases, Acton said. The firm has already invested in companies from New Brunswick to B.C., typically ones that have strong applicability to Canadian agriculture. Those companies are engaged in everything from gene editing and bio- logical solutions to software and hard- ware solutions in speciality crops, plant-tissue sampling, grain grading and beyond, Tall Grass said. martin.cash@freepress.mb.ca MARTIN CASH GABBY JONES / BLOOMBERG Shoppers walk through the Westfield Garden State Plaza mall in Paramus, N.J. Neiman Marcus operates 38 stores under two banners, which will be folded into a union of retail brands. Cyanide found in creek near gold mine slide: Yukon minister MAYO, YUKON — Yukon’s mining minister says elevated levels of cyanide have been detected in a waterway after an equipment failure and slide of ore at Victoria Gold’s Eagle Mine last week. The announcement by John Streicker on Thursday came hours after the com- pany issued a statement saying it had detected no cyanide in surface water after the slide. The firm also announced it had re- ceived notices of default from its lend- ers related to a US$200-million credit agreement. Streicker told a subsequent briefing that elevated cyanide levels of about 40 parts per billion were collected in a creek, a level higher than the allowable five parts per billion, and which “could potentially affect fish.” “Whether this concentration of cyan- ide in the water will actually affect fish depends on other chemicals in the water. Water quality sampling is on- going and fish toxicity testing is under- way,” he said. He said the government had retained experts in aquatic science and water quality to help understand the risk to the aquatic environment. The news conference came after Vic- toria Gold issued a statement saying surface water quality sampling at mul- tiple points downstream of the mine located about 500 kilometres north of Whitehorse had “not detected any cyan- ide” since the June 24 failure. When asked about the apparent dis- parity between the results, Streicker said samples were collected from mul- tiple locations and testing would have to continue over an extended period. “If you see a sample that says, ‘No, you don’t have cyanide,’ that doesn’t mean that the risk is gone. This is a serious and significant slide,” he said. “Over time, we will need to do a lot of monitoring to understand how, where and when those potential contaminants are moving through either the surface or the groundwater and what that looks like.” Victoria Gold CEO John McConnell did not respond to a request for com- ment. The failure occurred at a heap-leach facility, which uses a cyanide solution to percolate through crushed ore and extract gold. Yukon government officials said at the briefing ore spilled over an em- bankment at the base of the facility and the resulting landslide was about 1.5- km long. They said Victoria Gold had estimated the slide involved about four million tonnes of material and half of that escaped containment. ;