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CKE, parent of Carl's Jr., accepts buyout offer from Apollo Management

The $12.55-a-share deal could be the first of a series of restaurant chain sales as the industry's outlook improves.

April 26, 2010|Jerry Hirsch

After debating competing buyout offers, the parent company of the Carl's Jr. hamburger chain said it would be acquired by an affiliate of Apollo Management, spurning an earlier suitor.

Apollo's offer is the latest twist for a storied Southern California company that was founded as a Los Angeles hot dog stand in the 1940s by charismatic entrepreneur Carl Karcher.

The transaction is significant because it may mark the first in a series of restaurant chain sales, said Randall Hiatt, president of Fessel International Inc., a Costa Mesa-based restaurant industry consulting firm.

"This looks to be one of the first buyouts in a couple of years that has not been related to a bankruptcy," he said.

With the restaurant industry poised to recover from the recession, he said, the business will look more attractive to investors, he said.

"There is money out there in private equity for these types of transactions," Hiatt said. "To the degree that people are sensing there is a bottom to the recession for restaurants, we may see more deals. People believe it is time to buy in."

Earlier this month, Los Angeles-based California Pizza Kitchen Inc. said it was weighing various business options that may include selling itself.

Under the terms of the deal announced Sunday, CKE Restaurants Inc. said shareholders would receive $12.55 a share, or about $694 million. The company's shares closed Friday at $12.85, down two cents from the previous day.

CKE's deal with Apollo represented an about-face for the Carpinteria, Calif., restaurant chain, which in February said it had agreed to be bought by Thomas H. Lee Partners, a Boston private equity firm, for $619 million plus the assumption of about $309 million in debt. At the time, the $11.05-a-share cash offer represented a 24% premium over its closing price a day earlier.

Even at the time, CKE implied that the offer wasn't as tasty as the juicy burgers it sells with racy advertising campaigns. The chain said it intended to "actively solicit" competing bids.

Like much of the restaurant industry, CKE struggled amid the economic downturn and has been hurt by the high jobless rate in California, where its core Carl's Jr. brand is based.

Sales at company-operated stores open at least a year fell 5.2% at Carl's in February and March. The same measure fell 2.8% at Hardee's, which operates mostly in the Midwest and Southeast.

For the fiscal year that ended Jan. 31, CKE sales slid 4% to $1.4 billion from $1.5 billion. Net income, however, rose 30% to $48.2 million. But the profit was helped by a $9.9-million income tax gain in the fourth quarter rather than by improved restaurant operations.

"For the last couple of years they have shown continuous declines," Hiatt said.

"The whole idea that consumers traded down during the recession and that fast-food chains would do well just isn't true," he added.

Fast-food restaurants have fared better than casual dinners and even more expensive eateries, but they are far from recession-proof, he said.

From CKE's humble beginnings in Los Angeles, Karcher built his company into a regional fast-food powerhouse that could compete effectively against much larger national chains such as McDonald's and Burger King.

But by the late 1980s, insider-trading allegations against Karcher and his family led to a $664,000 settlement. And by the 1990s, ill-advised personal investments and the plummeting price of the company's stock pushed him to the edge of bankruptcy and into a losing battle with the company's board of directors that reduced his role to largely ceremonial duties.

He died in 2008 at age 90.

Although Karcher was known for his support of conservative political causes, the company's advertisements in recent years have been anything but conservative. CKE is known for its hormonally charged ads in which female models and celebrities such as Paris Hilton gobble oversize burgers while sashaying around in cleavage-displaying tops and revealing bathing suits.

The company suffered severe financial difficulties after the 1997 purchase of the troubled Hardee's chain, which was beset by dirty restaurants and bland food. The current management team led by Chief Executive Andrew Puzder turned the company around.

jerry.hirsch@latimes.com

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