Collins Moves to Get Rest of Naugles Stock It Doesn’t Own
Collins Foods International Inc., the majority owner of Naugles Inc., said Tuesday that it has proposed to acquire the 8% of the company it doesn’t already own in a stock swap valued at $9.9 million.
Collins said it will exchange $4.50 worth of its common stock for each of the 2.2 million shares of Orange-based Naugles’ common stock outstanding--a premium to Naugles’ public shareholders of approximately 30% above the current trading price.
The deal still must be approved by directors of the chain of Mexican-style fast-food restaurants.
Industry analysts on Tuesday hailed the proposal as a move that could further bolster Naugles’ management, sales and financial status.
Naugles’ board is expected to respond to Collins within 10 days, said Christopher Thomas, Collins’ vice president of finance. If the swap is approved, it will be submitted to Naugles’ public shareholders at an April meeting.
The stock swap is designed to further bolster the fortunes of Naugles, which Collins began acquiring and shoring up 14 months ago. “We found it administratively very difficult and not very efficient” to operate Naugles as a public company, Thomas said.
Los Angeles-based Collins already has financed a major regional television advertising campaign for Naugles and has been bolstering its management team.
Units Cut to 175
Naugles, founded 15 years ago, went public in October, 1981, and hit its peak of 200 units in eight states early in 1984. Since then, the number of units has been cut to 175.
The rapid expansion brought Naugles a rising tide of red ink, and when Collins stepped in the company was staggering under the weight of $45 million in losses.
In November, the picture brightened when Naugles reported $1.8 million in quarterly operating profits. Losses continued, however, because of a $2.3-million write-down for early retirement of debt.
And the operating earnings came not from tacos, but from chicken--generated by the 111 Kentucky Fried Chicken outlets Naugles acquired in October from Collins.
“It’s a good move for all concerned,” said Michael Mueller, an analyst with Montgomery Securities. Naugles’ shareholders, he said, will be trading shares “that probably won’t do very much” for shares in Collins “where you’re going to see substantially improved earnings continue for the next six quarters.”
Collins Foods closed Tuesday on the New York Stock exchange at $19.50 per share, down 12.5 cents for the day. Naugles common stock was trading for about $3.25 per share Tuesday. NAUGLES CHRONOLOGY
1971: Harold Butler, founder of the Denny’s and Jojos restaurant chains, buys the three-unit Riverside County chain from Richard T. Naugle.
October, 1981: Butler takes Naugles public, issuing 1.1 million shares at $9.50 each, when the company had 81 restaurants in six states.
March, 1984: Rapid expansion to 200 units in largely untested markets over a two-year period leads Naugles to announce it is closing 35 outlets and vastly shrinking expansion plans.
November, 1985: Chief executive Butler agrees to sell his 36% stake in the chain to Los Angeles-based Collins Foods International. The move comes as Naugles--which had lost money for four consecutive quarters--reports a $1.6-million loss for its first fiscal quarter ended Oct. 17.
May, 1986: Collins, which had boosted its holdings to 50.1 percent of Naugles, agrees to sell some of its profitable Kentucky Fried Chicken franchises to Naugles in exchange for stock, thus boosting Collins’ ownership interest in Naugles to about 92%.
December, 1986: Collins solidifies its control of Naugles Inc. by rebuilding senior management with nine of its own executives.
January, 1987: Collins offers to tender for remaining 8% of Naugles shares.
