Grace Units Will Add 2 Restaurant Groups

Taking advantage of General Mills Inc.’s ongoing revamp of its restaurant division, two subsidiaries of W.R. Grace & Co.’s Restaurant Group have tentatively agreed to purchase 52 restaurants from the Minneapolis food giant, the companies announced Thursday.

The purchase price was not revealed, but industry analysts estimate that it will be in excess of $60 million. The purchase boosts the number of Grace restaurants to 822 nationwide.

Under the agreement, Grace’s majority-owned subsidiary, El Torito Restaurants Inc. of Irvine, will acquire 25 Casa Gallardo Mexican Restaurants, and Grace’s wholly owned subsidiary, Grace Restaurant Co., also of Irvine, will acquire 27 Darryl’s theme restaurants. The sale is expected to take place before the end of the year, a Grace spokesman said.

Although Grace--a chemical industry giant headquartered in New York--reported a 28% drop in net income for the second quarter, its New York-based restaurant group, which has corporate offices in Irvine, saw sharply improved earnings, with operating income up 80% for the period. Industry analysts say that Grace’s restaurant group has wisely decided to grow at a time when an unusual number of struggling restaurant chains can be purchased at bargain prices.

Grace’s restaurant group has expanded aggressively in the past year, with its El Torito subsidiary purchasing 24 Casa Maria restaurants for about $40 million from the Marriott Corp. in September. Anwar Soliman, Grace’s executive vice president and president of the restaurant group, said the most recent acquisition “will strengthen our market position” in both the Mexican dinner house and casual dining segments.

The move by General Mills is an attempt to focus on its more successful restaurant operations, Red Lobster and York Steak House, and to expand its Olive Garden chain of Italian restaurants.

“General Mills figured if they couldn’t be in something in a big way, why be in it at all?” said Dennis Forst, an analyst at Seidler Amdec Securities Inc., Los Angeles. General Mills also recently announced that its 23-unit Good Earth natural-food restaurants are for sale.

Joe R. Lee, a General Mills executive vice president, said that despite the divestitures, the company plans to add at least 40 new restaurants in its three remaining chains during fiscal 1985.

Besides the restaurant group changes, General Mills executives also have announced a major restructuring of the company, to include the sale of its fashion division and plans to spin off its toy group. The announced changes come on the heels of General Mills’ disappointing fourth quarter, which showed a 10% drop in net income.

Grace is gambling that it can prosper from two restaurant operations that General Mills was able to keep just barely profitable, analysts say. General Mills’ most successful restaurant operation, the 372-unit Red Lobster, accounted for almost all of the $91 million in profits that its restaurant division reported last year, according to Frank Rolfes, analyst at Dain Bosworth Inc., Minneapolis.

“I wonder what makes Grace think that it can make a go of what General Mills couldn’t make work,” Rolfes said.

But Martin M. Casey, an El Torito executive vice president, said that with the ongoing shakeout in the Mexican food sector, “there are some real values out there now that were not there two years ago and may not be there two years from now.”