Bid to Control Naugles Chain Is Confirmed : Collins Foods Plans to Increase Stake to 51%
Collins Foods International Inc. confirmed Wednesday that it plans to take control of Naugles Inc. within the next several months by increasing its stake in the crippled fast-food chain to 51%.
The disclosure comes one week after the Los Angeles-based restaurant operator increased its holdings in Fullerton-based Naugles to 41.2% with the purchase of a 36.2% block of shares from Naugles’ former chairman, Harold Butler.
To increase its holdings again, Collins will buy newly issued Naugles common stock directly from the company, rather than on the open market, according to Richard P. Bermingham, president and chief operating officer of Collins. In an interview, Bermingham said that Collins plans to file notice with the Securities and Exchange Commission today of its intent to increase its Naugles stake.
“We think there’s potential for big things at Naugles,” Bermingham said.
Collins already has a number of key changes planned for Naugles, including a major advertising campaign--the first ever in the 16-year-old company’s history.
Collins, which operates 254 Kentucky Fried Chicken units and 467 Sizzler restaurants, is considered to be well-versed in the advertising field. When it purchased a struggling Sizzler Restaurants International Inc. in 1967, it brightened the stores and added a number of salad items, then heavily advertised the changes. Industry analysts regard Sizzler’s return to profitability as one of the greatest turnarounds in restaurant history.
Bermingham said that the company hopes to reduce Naugles operating costs by scaling back the hours at many of the 24-hour outlets. And some menu changes are also under way, including the introduction of fajitas , broiled strips of chicken or beef served on tortillas.
“We love a challenge,” Bermingham said. After expanding too rapidly outside of California, the 226-restaurant chain has lost millions of dollars during the past two years.
Bermingham said that Collins will retain Wayne Withers as Naugles’ chairman. Withers was named Naugles’ chairman and chief executive three months ago after Butler resigned.
Collins executives refused to speculate about when Naugles, which lost $1.6 million in the first fiscal quarter of 1986, will be profitable. “I can tell you this,” Bermingham said. “It won’t happen overnight.”
Many analysts believe that Collins can turn Naugles around. “I can assure you that Collins has done its homework,” said Michael G. Mueller, analyst with Montgomery Securities in San Francisco. But he said that it will take some time before Collins nails down its Naugles strategy. “They have to go in and look around for a while before they can take any major steps,” Mueller said.
Virtually eliminated from the Naugles picture is Butler, who was also founder of Denny’s coffee shop chain. He resigned as a Naugles director after the sale of his holdings to Collins and will remain only as a consultant.
Butler said he was paid nearly $7 million for his 1.6 million shares of Naugles.
Butler now finds himself a partner in the privately owned Hershel’s with James Collins, chairman of Collins Foods. The two men have known each other for three decades. As part of the Naugles deal, Collins paid Butler about $4 million for a 31% interest in Hershel’s. Butler, who owns about 65% of Hershel’s, said the deli chain will probably go public in another year.
“This will pretty much be my last hurrah,” said Butler. “I don’t see any other voids in the restaurant market.”
