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La Brea Bakery Uses Private Stock Offering to Raise Dough

August 03, 1998|DEBORA VRANA

While these days it seems that any company related to the Internet grabs headlines and investors' attention, a little Los Angeles company is hoping to go big-time with one of life's staples: bread.

In an effort to capture a larger slice of the $6-billion specialty bread market, La Brea Bakery of Los Angeles is in the midst of a major expansion--after raising $10 million from a private institution--to become the largest artisanal, or specialty, bakery in the United States.

After quietly spinning off from upscale Los Angeles restaurant Campanile last year (the two were part of a general partnership), La Brea is taking its bread to the nation by building a plant in Van Nuys to produce "parbaked" versions of its loaves. Parbaked bread is dough that has been 80% baked and then quick-frozen for baking later.

The new facility, scheduled to open by the end of the year, would initially employ nearly 100 people, said Manfred Krankl, president and chief executive of La Brea Bakery.

La Brea's olive, rosemary, chocolate sour cherry and fig breads can be found at more than 600 retail locations, including about 300 Western U.S. Starbucks and Ralphs grocery stores. Sales were $13 million last year and are forecast to reach $15.5 million this year. The new factory is expected to strongly boost revenue in 1999.

"The bakery has dramatic ability to grow, and the restaurant can only grow so much," said Krankl, who holds an 8% stake in the bakery. "The response has been pretty remarkable."

Nancy Silverton, who opened La Brea Bakery in 1989, also owns the adjacent Campanile restaurant on La Brea Avenue with her husband, Mark Peel. The two also worked together at trendy Spago, where Peel was Wolfgang Puck's head chef.

La Brea makes most of its breads at a facility on Washington Boulevard in Los Angeles. That site will continue to be the hub of the firm's fresh bread business, Krankl said.

To structure its $10-million private placement with the U.S. subsidiary of Industrial Bank of Japan, La Brea tapped investment firm Houlihan Lokey Howard & Zukin, a Los Angeles company known for its expertise in calculating the fair value of a business.

"We took a look at the situation and recognized what needed to happen for them to grow," said Scott Adelson, a managing director with Houlihan and a member of La Brea's board. "Now they are busily implementing the expansion plan. There's a lot more that can happen here."


A private placement is a sale of stock, bonds or other securities directly to an institutional investor, such as an insurance company. These deals can be done for various reasons, including restructuring debt into equity or because a company is not ready to go to Wall Street and sell stock to the public, either because it doesn't have a track record or is too small.

Through June, nearly $10 billion had been raised through equity and debt private placements by California companies, compared with $5.1 billion the previous fiscal year, according to CommScan, a New York data firm.

The larger private placements this year include a nearly $1.3-billion convertible debt deal by Irvine-based Western Digital Corp. in February, nearly $900 million in high-yeld debt raised by Palm Desert-based U.S. Filter in May and more than $1 billion of high-yield debt raised in May by Santa Barbara-based Tenet Healthcare, according to CommScan.

Meanwhile, the climate for initial public offerings turned ugly again last week, reflecting the broad weakness of the overall market--especially for small-company stocks.

IDG Books Worldwide Inc., the Foster City-based publisher of the "For Dummies" guides, was the one bright spot in the IPO market, raising nearly $50 million on Tuesday by selling stock at $15.50 a share. The stock rose as much as 11% in its first trading day but ended the day up just 5.9%.

Palo Alto-based Echelon, which sells hardware and software to support control networks, raised $35 million Tuesday by selling stock at $7 a share. But it closed unchanged. Los Angeles-based Team Communication priced last week at $5.50 a share, the low end of its expected range.

Typically, IPOs post significant gains in their first trading day, which compensates investors for the greater risks of buying the new offerings. For the year, IPOs nationwide have seen an average first-day gain of about 15%, according to Securities Data.

Several companies followed the example of San Francisco-based Del Monte Foods Co., the world's largest producer of canned fruits and vegetables, which decided to yank its $250-million IPO planned for last week until conditions improve.

Despite the rocky market, other California companies filed with the Securities and Exchange Commission to go public.

Cupertino-based provides content from organizations such as National Public Radio and Penguin Books USA on the Internet. The company said it plans to sell 2 million units consisting of common stock and warrants at $12 to $15 each. In 1997, it reported a loss of $3.8 million.


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