Group Acquires Controlling Stake in Restaurant Operation : Grace Board OKs Management Buyout

The board of W. R. Grace & Co. on Friday approved in principle a plan to sell controlling interest in its $1-billion restaurant operation to the group’s management through a leveraged buyout.

Included in the leveraged buyout are 689 restaurants under the names: Coco’s, Carrows, Jojos, Houlihan’s Old Place, Darryl’s, Charley Brown’s, Charley’s Place, Bristol Bar & Grill, Devon Bar & Grill, Applebee’s and El Torito. In a leveraged buyout, a company is purchased using borrowed money that is repaid with funds generated by company operations or the sale of assets.

Grace said last month that it was considering selling part of its restaurant business through a leveraged buyout on the same day that it announced plans to sell the bulk of its retail business to a group led by Harold S. Geneen, former chairman of ITT Corp., and David J. Mahoney, former chairman of Norton Simon Inc. Grace is undergoing a restructuring that will focus the company on its core businesses, primarily specialty chemicals.

Grace said it expects to get more than $500 million in the transaction, which is subject to several conditions, including obtaining financing, negotiating the final terms and receiving final approval of the Grace board.

Grace would retain a 49% stake in the restaurant business, and a group led by Grace Executive Vice President Anwar Soliman, his existing management team and Drexel Burnham Lambert would own the remaining 51%.

The structure of the restaurant deal “is a good way to generate a lot of cash and still hold on to a big piece of a good business,” a Grace spokesman said. Grace’s restaurant group had sales of $1.03 billion in 1985 and after-tax operating income of $17.9 million, marking the group’s fifth consecutive year of earnings growth.

Irvine-based El Torito Restaurants, which is 73% owned by Grace, would be merged into the restaurant group after the other shareholders are bought out for about $20 per share in cash. There are nearly 3.1 million shares outstanding not owned by Grace.

Grace’s board also approved a proposal to sell its 82% stake in Dallas-based Taco Villa for $34 million, or $4.85 per share, to an affiliate of Costa Mesa-based Del Taco. A spokeswoman for Del Taco declined to name the affiliate or comment on the transaction.

Grace plans to buy the 11-restaurant Applebee’s chain from Taco Villa for $11.3 million.

At the company’s annual meeting Friday, Charles H. Erhart Jr., vice chairman and chief administrative officer, told shareholders that, as part of its restructuring, the company will sharply limit expenditures for its agricultural chemicals operations and shrink its natural resource business to reduce Grace’s dependence on cyclical commodity businesses. Grace plans to expand its specialty chemicals business, he said.