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Johnson Cuts Fatburger Stake

Difference of opinion between management and the ex-ballplayer's team is cited. The chain plans expansion.

August 20, 2003|Melinda Fulmer | Times Staff Writer

Former basketball great Earvin "Magic" Johnson and his partners have sold most of their stake in Fatburger to a group led by the chain's chief executive, Keith Warlick.

Johnson's Burger Business LLC, which includes celebrity investors such as actor David Spade and singer Janet Jackson, held a 70% stake in the Santa Monica-based burger chain. Johnson and his partners, who bought the 51-unit chain in August 2001, wouldn't disclose the terms of the deal or give specific reasons for the sale.

"My partnership team and the existing management had a difference of opinion regarding the strategic direction of the company," Johnson said in a statement.

Warlick said the disagreement centered on how rapidly the chain should expand and who should own the locations. "We need to focus on building stores," he said. "You can only have one person in charge. I need to be able to pick franchisees myself."

Portland, Ore.-based Fog Cutter Capital Group Inc. backed Warlick's purchase of the 1950s-themed hamburger chain with a $6-million financing package.

Fatburger now plans to open 124 mostly franchised locations this year in its existing markets of California, Nevada, Arizona and Washington, as well as in new markets in Oregon, Florida, Georgia, Louisiana, Michigan, Ohio and New Jersey.

Ron Paul, president of restaurant consulting firm Technomic Inc., called those plans ambitious but not unrealistic if undertaken via franchising.

"There's still room for niche players," Paul said, citing the success of Fatburger rival In-N-Out Burger. Fatburger, he said, "is an underexploited brand."

Kenneth Lombard, president of Johnson Development Corp., dismissed the idea that the disagreement centered on expansion. Warlick's group, he said, just offered them "an attractive price." Johnson and his partners will retain a minority stake in the company.

In addition to Fatburger, Johnson owns Magic Johnson Theaters and various Starbucks coffee houses and T.G.I. Fridays restaurants across the country.

Fatburger was started in 1952, when Lovie Yancey opened her first hamburger stand in Los Angeles, using the slang term "fat" as a substitute for good.

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