Bank of America Corp., the lender divesting assets to raise capital, is in exclusive talks to sell its stake in the biggest Pizza Hut franchisee for more than $800 million, said two people with knowledge of the discussions.
Two private-equity firms teamed up to bid for NPC International Inc., which operates 1,140 Pizza Hut restaurants, said the people, who declined to be identified because the talks are confidential. One hurdle in closing the transaction is arranging debt financing for NPC, in Overland Park, Kan., as credit markets for buyouts tighten, the people said.
"They've got to do two things — reduce riskier assets and continue to reallocate capital to other businesses," said Jonathan Finger, whose investment company, Finger Interests Ltd., owns 1.1 million Bank of America shares.
Bank of America Chief Executive Brian T. Moynihan has agreed to sell almost $50 billion of assets and units ahead of stricter international rules on capital. The firm said in April it was unwinding its flagship buyout fund because private-equity holdings will require a larger capital cushion under recommendations from the Basel Committee on Banking Supervision.
Jerry Dubrowski, a spokesman for the Charlotte, N.C., lender, did not comment. Troy Cook, NPC's chief financial officer, didn't return messages seeking comment.
The bank inherited NPC in its 2009 takeover of Merrill Lynch & Co., which bought the pizza purveyor in May 2006 for $615 million, according to a filing. NPC accounts for about one-fifth of Pizza Hut restaurants, the firm said in August. Its stores are spread across 28 states, mostly in the Midwest and South, with about 26,000 employees.
The price being negotiated may be a premium to what fast-food franchise operators typically trade for. Rivals may be valued at six to seven times earnings before interest, tax, depreciation and amortization, said Bryan Hunt, a Wells Fargo & Co. analyst. That would mean about $630 million to $735 million for NPC, which posted $105.5 million in EBITDA last year.
NPC is "highly leveraged," which could hurt the firm's ability to raise capital or repay debt, the company said in a February regulatory filing. The operator said it had $402.4 million in loans at yearend, $44.2 million in cash and $58.1 million available under a credit facility.
Bank of America accelerated asset sales amid concern that the firm, which reported a record $8.8 billion second-quarter loss, will have to issue stock to bolster capital. The lender has lost more than half its market value this year.
Moynihan has said repeatedly that the bank will reach capital targets by divesting assets deemed less important to customers, rather than issuing shares or divesting core units.
Bank of America agreed last week to sell its stake in the hospital operator HCA Holdings Inc.
Last month, the bank announced deals to divest a Canadian credit card unit for C$7.5 billion ($7.3 billion) and sell about half its stake in China Construction Bank Corp., the world's second-biggest lender by market value, for $8.3 billion in proceeds.
Moynihan is shrinking the bank through an initiative known as Project New BAC, which involves slashing 30,000 jobs from consumer banking and back-office operations.
The company expects to trim $5 billion in annual expenses by the end of 2013.
"We don't have to be the biggest company out there," Moynihan said at a Sept. 12 investor conference in New York. "We can get out of things we don't need to do, make the company leaner, more straightforward, more driven."
