If Foodmaker Inc. did not have a huge pile of debt, Chairman Jack W. Goodall probably would be expanding his company's Jack in the Box restaurant chain by adding company-owned stores.
But with $251 million in long-term debt that remains after a 1985 leveraged buyout from St. Louis-based Ralston Purina, Goodall instead is expanding Foodmaker's Jack in the Box chain by adding franchised locations.
"I probably wouldn't do that if we didn't have the debt," Goodall acknowledged after Friday's annual shareholder's meeting. "But we're financing our future growth by franchising restaurants."
Growth in the highly competitive fast-food industry is important, and on Friday, Goodall told shareholders that Jack in the Box's franchising potential "is one of the most under-valued assets of this company."
That potential exists because as late as 1982, just two of the company's restaurants were owned by franchisees. Now, nearly a third of Foodmaker's 900 locations are owned by franchisees, and the percentage of company-owned stores will fall dramatically as the company pushes toward its goal of 1,200 restaurants by 1992, Goodall said.
Putting Fees to Work
That franchising strategy will help Foodmaker bolster its presence in the 13 states where the company already operates Jack in the Box restaurants. Foodmaker also will use franchising fees to fund the opening of new company-owned stores as well as to trim its mountain of debt.
And, the company will "use acquisitions" to build the number of Jack in the Box restaurants around the country, Goodall said.
During recent months, Foodmaker has acquired more than 30 new locations by buying sites from competing fast-food companies.
However, Goodall on Friday refused to comment on an earlier report in the San Diego Union that Foodmaker had made a $240-million bid for Chi-Chi's Inc., a publicly-traded, Louisville-based company that operates about 130 dinner houses that are located largely in the East.
In a curt response to a shareholder question on Friday, Goodall said that the company "does not comment on any acquisition activity. We just don't comment on it." Additionally, a spokeswoman for Chi-Chi's declined Monday to comment on Foodmaker's supposed bid.
However, after the meeting, Goodall acknowledged that Foodmaker would be interested in making an acquisition "if it would increase shareholder value."
And, Arthur Levine, chairman of a privately held, Beverly Hills-based leveraged buyout firm, on Friday said that "there are market rumors that (Foodmaker is) interested" in Chi-Chi's.
Levine said that Chi-Chi's board of directors is scheduled to review a $300-million bid by Levine, Tessler, Leichtman & Co., which was formed last year to complete leveraged buyouts.
That firm's bid includes an offer of $10.125 per share for Chi-Chi's outstanding shares and the assumption of $65 million in debt held by Chi-Chi's, Levine said.
"We're hoping that Chi-Chi's board approves our proposal on Tuesday and resolves this whole thing," Levine said.