OK, time to take a break from trying to make sense of the culture wars gripping our state, and instead turn our attention to the intersection of two of America’s favorite pastimes: eating and investing.
I think it is fair to say that expectations were fairly low back in January 2008 when Jim Morgan was brought in to run Krispy Kreme Doughnuts. The company’s CEO, Daryl Brewster, had just resigned after less than two years on the job. The stock was foundering at about $3 a share. Morgan had been a director at Winston-Salem-based Krispy Kreme for eight years and board chairman since 2005, but his background was in financial services. It was hard to look at this rail-thin investment executive and say he understood or embraced the art and science of persuading consumers to buy food that isn’t good for them.
Yet, here we are. Sometime in the next few months, Krispy Kreme is likely to be sold into the ever-expanding coffee and baked-goods portfolio — Peet’s, Caribou, Keurig — of JAB Holding Co., controlled by Germany’s Reimann family. JAB is paying $1.35 billion, or $21 a share, which is a nice bump from the basement in 2008. On the other hand, if you bought the stock in November 2013, when it was selling at upward of $25 a share, it’s not so nice.
In a sense, this is the fundamental question that has plagued Krispy Kreme for much of its run as a public company. Just what is it worth? Those with better memories may remember all the hoopla surrounding its IPO in 2000, when it seemed like that silky, sugary glaze would make us all rich. The stock peaked at around $44, with a price-earnings ratio that was equally hyperglycemic, and then it went into a nosedive. There were allegations of manipulating earnings and other transgressions. Scott Livengood, who had led the company through the boom and bust, resigned during the scandal — he now runs Dewey’s Bakery Inc., a small chain in Winston-Salem — and Krispy Kreme entered eight years in the wilderness.
I confess to experiencing a certain amount of delight in its initial comeuppance. Call it schadenfreudengluten. Krispy Kreme proposed an extravagant corporate campus on the edge of downtown. At the time, Winston-Salem hadn’t yet caught the research bug and believed that its salvation, the next act after cigarettes and apparel, could be found in doughnuts. Yes, doughnuts. It sounds as silly today as it did back then.
Along with the implosion of its market capitalization, Krispy Kreme lost that most precious of commodities for public companies: trust. Investors expect that the numbers are right, that the forecasts are accurate, that bad news isn’t masked through accounting tricks. Other than simply turning Krispy Kreme upside down and shaking it hard to make the company run smarter, Morgan’s biggest accomplishment was simply emphasizing consistency. That’s where his experience running the Charlotte-based Interstate/Johnson Lane stock brokerage, later sold to Wachovia Corp., came in handy. He understood how Wall Street thinks, that predictable bad news can be better than unexpected good news.
For all of Morgan’s prowess in stabilizing Krispy Kreme, it is a company caught in an existential crisis. Other than their inherent portability, doughnuts are on the wrong end of most food trends that will drive consumption in years to come. In our protein-rich, Sriracha-slathered, kale-infused world, there is certainly room for a uniquely American guilty pleasure. I say amen to that. But threading that needle is a difficult task, and Krispy Kreme would be challenged to do that within the quarter-to-quarter expectations of a public company.
So, in a sense, we’ve come full circle. Krispy Kreme will be a better company — a more authentic company — when it can just worry about making and selling doughnuts. And maybe the folks at JAB can finally fix the coffee.
If there’s a hitch, it is this: There are a handful of investors who have filed lawsuits to stop the deal. They allege a breach of fiduciary duty by Krispy Kreme’s board, which is a fancy and roundabout way of saying that they want more money. Which is what we all want. That and a fat-free doughnut.