Del Taco to Buy 181 Restaurants From Grace Co.

Del Taco Inc., the last of the three major Southern California Mexican-style fast food chains to join the “taco wars,” will double in size with the acquisition of 181 south-of-the-border-style restaurants now owned by W.R. Grace & Co., said Wayne W. Armstrong, Del Taco’s president.

The privately held Costa Mesa chain, which recently unveiled new decor and an updated menu designed to shake it loose from the slump gripping the restaurant industry, now stands on the verge of going nationwide with its acquisition of Grace’s “Taco Villa” chain and about 120 restaurants Grace operates under the Del Taco name from New Mexico east to Florida.

According to Grace officials, Del Taco International Inc.--a new corporation formed by Del Taco’s principal owners for the purpose of the acquisition--will pay $4.85 a share, or approximately $33.6 million for Taco Villa. Grace, which owns 81% of the Dallas-based chain, said the deal “also contemplates” that Taco Villa’s public shareholders will receive another $7.9 million for their stake in the company.

The purchase agreement, which was quietly reached in late June, is expected to close by late November, Armstrong said. The Grace restaurants, he said, have annual revenues of more than $70 million a year, he said.

While the deal will bring to 365 the number of fast-food outlets under Del Taco’s control, the restaurants vary in decor and menus. Despite the differences between the Grace units and the California Del Tacos, there will be few changes during the near term.

“There is no reason to put the companies together at this time,” Armstrong said. “We think the first order of business is to get these units on the same wavelength.”

And, while the changes for the new restaurants are yet to be determined, Del Tacos in California are following Naugles Inc. and Taco Bell, a unit of Pepsico, in a quest for the recipe for increased sales.

Already at some Del Tacos in Southern California, the familiar orange and browns are being replaced by lighter, more cheerful schemes, which include pictures of menu items and skylights. Fresh fruit and a new line of entrees will round out the package.

During the fiscal year ended April 30, Del Taco had net earnings of $1.5 million, down 37% from $2.4 million a year earlier, Armstrong said. Revenues during Del Taco’s fiscal 1986 remained flat at $24 million.

Armstrong, who prides himself on Del Taco’s never having laid off an employee in its 21-year history, hopes that by buying better and scheduling its labor more efficiently, the company can boost net earnings to $3 million this year on $29 million in revenues.