Can a New CEO Get Subway Back on Track or Is the Company Looking to Sell Itself?

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Sandwich maker Subway had more fast-food locations at the end of last year than any other quick-service restaurant in the United States. The privately held company had nearly 25,000 U.S. locations, after closing more than 1,100 during the year. Subway also rang out 2018 without a chief executive officer.

On Wednesday, the company announced that John Chidsey would start work as Subway’s CEO on Monday. Chidsey was Burger King’s CEO from 2006 until the company was sold to private equity firm 3G Capital in 2010. He is the first CEO since the company’s founding in 1965 who is not a member of one of the two families of founders Dr. Peter Buck and Fred DeLuca.

Former CEO Suzanne Greco is DeLuca’s sister, and she assumed the role following DeLuca’s death in 2015. She retired in June 2018, and Subway’s chief development officer, Trevor Haynes, was named interim CEO. Haynes will remain with Subway as its president of North American operations.

In a statement on Chidsey’s hiring, Subway’s owners said: “We’re very pleased to have John join our Subway family. His diverse business background and global food and beverage expertise will help us continue the evolution of the Subway brand. He will help drive our commitment to always deliver exceptional experiences for our guests and continued support for our franchise owners.”

In the past three years, franchisees have closed 2,333 stores. In the previous six years, nearly 4,500 stores were added. For a company whose stores are 100% franchised, this is a big deal.

Subway is trying to stem the closures by, among other things, kicking in $100 million to help remodel more than 10,000 locations. That amounts to just $10,000 per store, or about a quarter of the total remodeling cost. Could it be that Subway’s refresh program is simply another step in dressing up the company’s sandwich shops for a sale?

Subway’s statement on Chidsey’s hiring includes his commitment to support the franchise owners. Maybe that’s a signal that Subway’s owners want to cash out. After all, Chidsey was in charge when Burger King was sold to 3G Capital for $3.3 billion in 2010, so he’s been here before. There nearly 18-month gap between CEOs may be a sign that Subway’s owners were wrestling with the notion of a sale of the company and have finally set the company on course for such a transaction.

And there could be plenty of potential buyers among private equity firms that are flush with cash from investors looking to beat the markets. According to a report from accounting and consulting firm EY, assets under management at hedge funds fell by 7% this year while private equity firms added an equal amount. The EY report noted: “Private equity managers have every reason to enact ambitious capital-raising strategies and continue to identify growth as their top priority.”

Subway won’t be cheap, but it is arguably the premier fast-food chain that could be available. According to QSR Magazine’s annual report on the top 50 chains, Subway trailed only McDonald’s and Starbucks in sales. And it’s one of only two in the top 10 that is not already publicly traded or owned by a publicly traded company (Chick-fil-A is the other). Stay tuned.

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