Saga Accepts Sweetened Bid; Deal Will Give Marriott Big Share of Food Service Field

By DENISE GELLENE

June 10, 1986 12 AM PT

Times Staff Writer

Saga Corp., a big name on hundreds of college campuses, said Monday that it accepted a sweetened $502-million cash buyout offer from Marriott Corp.

Saga, which operates a food service division that has fed millions of college students, said its board of directors accepted Marriott’s $39.50-a-share bid over the weekend. The acquisition would make Marriott, better known for its hotels and restaurants, the nation’s third-largest institutional food company behind ARA Services and Canteen Corp.

Marriott raised its bid for Saga on Saturday after only a tiny fraction of shareholders responded to its hostile $34-a-share tender offer--an offer that Saga’s board had rejected as too low. Saga’s shares soared to $37.75 from $29.50 after Marriott first signaled its interest May 8.

Saga’s shares closed Monday at $39.37 1/2, up $2, on the New York Stock Exchange. Marriott shares closed at $175.50, down $2.87 1/2, on the Big Board.

May Sell Restaurant Operations

Marriott said that Menlo Park, Calif.-based Saga, which also operates the Velvet Turtle, Spoons, Stuart Anderson’s and Grandy’s restaurant chains, would become a Marriott subsidiary. Restaurant industry analysts said they expected Marriott to sell Saga’s troubled restaurant operations. Marriott said Monday that it had no plans for Saga’s businesses as yet.

“That’s their formula,” said Dan Lee, who follows Marriott for Drexel Burnham Lambert in New York. Lee said that last year, for example, Marriott paid $300 million for the Howard Johnson chain, converted the restaurants to Bob’s Big Boys and sold the unwanted hotels to Prime Motor Inns for $235 million.

Ward P. Lindenmayer, an analyst with S. G. Warburg, Rowe & Pitman, Akroyd in San Francisco, said Marriott would probably sell the Stuart Anderson’s steak house chain and the Straw Hat Pizza chain, which Saga has tried to sell. Straw Hat Pizza has been hurt by poor morale and a glut of pizza parlors, while Stuart Anderson’s menu features steak dishes unpopular with today’s health-conscious diners, who want lighter fare, he said.

Third Major Acquisition

The Saga acquisition nearly doubles Marriott’s institutional food service sales to about $1.4 billion and makes it a more formidable competitor in the hotly contested $15-billion food service market.

The Saga purchase is Marriott’s third major food services acquisition in 18 months. Last year, it acquired Service Systems and Gladieux, which had a combined $400 million in sales. Saga had $650 million in food services sales last year.

The Saga purchase especially strengthens Marriott’s presence in college and university dining halls, where Saga is the leading food service contractor. Marriott’s strength is in corporate cafeterias in the mid-Atlantic region and as an airline food supplier.

Analysts said the two companies were well managed and would blend easily, despite some differences. Saga emphasizes low cost in its food service business, while Marriott stresses quality, analysts said. “Marriott is seldom the cheapest when it’s bidding on a contract,” Lee said. “It may not be that way with Saga.”

Analysts said the food service business has become increasingly desirable because, unlike restaurants, overhead is low. Food service companies work in cafeterias owned by corporations or colleges, which supply virtually all of the equipment. “It’s like working in someone else’s factory,” Lee said.

As part of the merger agreement, Saga agreed to pay Marriott $6.5 million if it is acquired by someone else during the next year or if Saga’s board changes its mind about the Marriott offer. Marriott also said it would pay $39.50 a share to the owners of the 700 shares tendered under the $34-a-share offer. Saga has 12.7 million shares outstanding.

SAGA AT A GLANCE

Saga, based in Menlo Park, Calif., operates what is believed to be the largest provider of food services for the U.S. college market. It also owns several restaurant and fast-food chains including Stuart Anderson’s, the Velvet Turtle, Grandy’s, Straw Hat Pizza and Spoons.

1985 1984 1983 Revenues $1.25 $1.13 $1.01 (in billions) Net Income $29 $31 $24 (in millions)

Assets: $428 million

Employees: 60,000

Shares outstanding: 12.7 million

12-month price range (NYSE): $20.75-$37.75

Monday close: $39.375, up $2

MARRIOTT AT A GLANCE

Marriott, based in Bethesda, Md., owns or

manages a chain of hotels, restaurants and

contract food services. It operates Big Boy,

Roy Rogers, Marriott, and some Howard Johnson

restaurants.