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Wendy's Agrees to Buy Baja Fresh for $275 Million

Restaurants: Deal would give the Mexican-food fast-casual chain the capital for expansion.

June 01, 2002|MARC BALLON | TIMES STAFF WRITER

Seeking to capitalize on the sizzling "fast-casual" market, Wendy's International Inc. said Friday that it agreed to buy the parent company of Baja Fresh Mexican Grill for $275 million in cash.

The deal, coming just weeks after the Thousand Oaks-based Mexican-food chain announced plans for an initial public stock offering, would give Baja Fresh the capital and marketing muscle to expand rapidly in the fast-casual sector, the fastest-growing part of the restaurant industry.

Wendy's Chief Executive Jack Schuessler said his company can expand Baja Fresh to as many as 700 restaurants within five years, from 169 now.

The deal "allows us to have access to a lot of capital and to grow more quickly than we would have," said Greg Dollarhyde, president and CEO of Baja Fresh, who would continue to head the Mexican chain after the merger.

"Baja Fresh is clearly the quality leader in the Mexican fast-casual category, and we feel fast-casual is where [the trends] are going," Schuessler said.

Fast-casual chains, which combine the speed of fast food with the quality and freshness of casual dining at a moderate price, are gaining popularity among consumers who want healthier fare than traditional fast food.

Fresh Enterprises Inc., Baja Fresh's parent, would continue to be based in the Southland and operate as a wholly owned Wendy's subsidiary. No layoffs are expected at Baja Fresh, which had an operating profit of $6.4 million, before charges, on sales of $72.8 million in 2001.

Wendy's, the nation's No. 3 fast-food chain, wants to acquire Baja Fresh's restaurants in 16 states and the District of Columbia to help it meet a goal of profit growth of 12% to 15% over the next decade, Schuessler said.

Wall Street reacted favorably to the deal. Wendy's shares jumped $1.97 to $37.97 on the New York Stock Exchange.

With growth in the huge fast-food market slowing to 1% to 2% a year, several industry leaders recently have acquired or invested in fast-casual chains.

McDonald's Corp., the world's largest fast-food chain, said recently it plans to jointly develop as many as 30 outlets with Fazoli's, a Kentucky-based fast-casual chain of about 400 restaurants. Previously, the Golden Arches acquired Boston Market, Donatos Pizzeria and a majority share in Chipotle, a fresh-Mex chain.

CKE Restaurants Inc., parent of the Carl's Jr. chain, recently snapped up the 95-outlet La Salsa chain, a key Baja Fresh competitor. And in February, Wendy's invested $10 million for a 45% stake in Cafe Express, a Houston-based chain of 13 restaurants.

Wendy's first-quarter net profit rose 12% to $43.4 million. Revenue jumped 10% to $612.4 million.

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