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FTC launches antitrust probe into $9.6 billion Subway merger: source

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The Federal Trade Commission has launched an antitrust investigation into Roark Capital’s $9.6 billion acquisition of Subway Restaurants, investigating whether the investment firm’s ownership of rival sandwich shops raises competition concerns, it told The Post a source close to the situation.

The FTC, headed by Biden appointee Lina Khan, 34, is still gathering information as it reviews the Aug. 24 merger deal, and has no near-term deadlines, an indication that its review will likely extend into next year, he said. the source said.

Khan’s FTC launched a formal investigation earlier this month into the purchase of America’s largest restaurant chain after Roark unsuccessfully tried to get the deal approved in the first initial 60-day review period. Politico reported on Tuesday.

The merger would create a sandwich-selling colossus that would control more than 40,000 restaurants, three times more than McDonald’s in the United States.

The private equity firm, which already owns Dunkin Brands, Arby’s, Sonic Drive-In, Schlotzky’s and Jimmy John’s, will not combine Subway and its roughly 20,000 U.S. restaurants with its other chains, Subway CEO John Chidsey has publicly insisted.

However, the FTC considers everything a private equity firm owns to be part of the same operation, even if they are in different holding companies, the sources said.

FTC Chairwoman Lina Khan is not authorizing Roark’s acquisition of Subway without a full investigation, sources said.
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Meanwhile, Subway’s franchise agreement outlines in detail how it defines its competition, and some of the larger chains owned by Roark appear to fit the bill, according to a copy of the 2021 agreement obtained by The Post.

In a key passage, the franchise agreement defines a quick-service restaurant that would be “competitive” to Subway as one that is located within a three-mile radius of one of its restaurants and that earns “more than 20% of its revenue.” total gross sales of any type of product. sandwiches with any type of bread, including, but not limited to, bagels and other rolls, sandwich bread, pita bread, flatbreads and wraps.”

Although the restricted menu items do not include “burgers, hot dogs, burritos or fried chicken sandwiches,” according to the document, that would still leave room for Arby’s roast beef sandwiches, experts said.

Meanwhile, the deal explicitly mentions Jimmy John’s, McAlister’s Deli and Schlotzky’s by name as it upsets competitors.

If Roark Capital is allowed to buy Subway, it will own chains that have approximately 40,000 restaurants in the United States.
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“The perception of the parties themselves merging gets a lot of emphasis,” former Republican FTC Chairman William Kovacic told The Post in September, saying restrictions in the franchise deal could raise serious concerns among regulators. “That is a starting point to think about the dimensions of the market.”

Some believe there could also be a risk with Roark’s Dunkin’ chain, which like Arby’s is not mentioned in the document. While Dunkin’ does not publicly break down its sales by category, in 2017 it generated 27% of sales from items other than donuts and drinks, largely its breakfast sandwiches. according to publication Franchise Chatter.

Subway defined its competition fairly broadly so that franchisees wouldn’t spend money opening other concepts.

Subway prevents its franchisees from opening Arby’s or Jimmy John’s restaurants and now wants to merge with its parent company Roark.
Christopher Sadowski

“Now the big suckers have backed themselves into a corner,” one franchisee told The Post on Tuesday.

Roark agreed to pay a relatively large breakup fee of $360 million to Subway if it could not complete the purchase within 12 months, indicating that Subway knew the merger had risks.

When the FTC prevents a merger from closing so it can review the deal, it is called the second review process and generally means an exhaustive investigation that will last months.

Neither Subway nor Roark returned calls.

The FTC declined to comment.

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