After turning down a buyout offer from Marriott, Denny's--the nation's largest coffee shop chain--has been purchased by a New York food service firm for $218 million in cash, the companies announced Thursday.
TW Services acquired the 1,200-unit coffee shop chain--along with the La Mirada-based company's 70 El Pollo Loco chicken restaurants and a 42% interest in the Winchell's doughnut house chain.
The purchase comes at a time when the coffee shop industry is struggling to compete with lower-cost fast-food chains and upscale, sit-down restaurants.
"I think it was a good price for Denny's," said restaurant analyst James J. Murren at Cyrus J. Lawrence Inc., a brokerage firm. "It was not a fire sale by any means."
Denny's chairman, Vern Curtis, 52, will step down after the takeover by TW is completed sometime in September. But its president, Donald Pierce, and most of its top management is expected to remain.
In a statement, Pierce said: "We are pleased to be joining a company that has such broad capabilities in food services. The combination will ensure Denny's continued development as an international leader in the dynamic restaurant business."
Revenues of $1.9 Billion
TW, which had revenue of $1.9 billion last year, owns an institutional food service and concessions company--Canteen Corp.--that serves factories, schools, hospitals and sports stadiums (including the Los Angeles Coliseum), 200 Quincy's family restaurants in the South and 400 Hardee's hamburger restaurant franchises. TW also runs 25 nursing homes in California, Wisconsin, Colorado and Illinois.
On the New York Stock Exchange, TW stock closed Thursday at $18.625, down 62.5 cents.
"The acquisition of Denny's will significantly enhance our growth in food services," said Frank L. Salizzoni, chairman and chief executive of TW Services. "It gives us an established position nationwide in the public restaurant business to compliment our present strength in institutional food services and our highly successful 600-unit retail restaurant operation in the southern United States."
Analyst John Kalmbach at Merrill Lynch Research & Economics agrees: "It offers them a lot of opportunities in the area of cost savings. They already have a restaurant operation--you don't need two corporate staffs."
Under the terms of the agreement, TW will pay the stockholders of DIH Corp.--Denny's corporate parent--$218 million in cash. And, under an arrangement already approved by DIH's lenders, $625 million in loans will be secured to DIH's assets. The debt will be paid off with cash from DIH operations.
The company, which had revenue of $1.2 billion in the past year, was taken private by management in 1984.
The agreement follows a failed attempt by Marriott, franchiser of Big Boy restaurants, to purchase Denny's. The propsed merger, which did not include the Pollo Loco chain, would have combined the nation's two largest coffee shop chains.
Besides failing to meet Denny's asking price, the proposed merger with Marriott may have fallen through because the chain's current management would have not been as autonomous as they may have wished, analyst Murren said. "Denny's will have a lot more leeway to do what they want to do" under TW, he said.
The coffee shop chain got its start in 1953 when Harold Butler opened up a doughnut shop in Lakewood named Danny's. But when customers confused Danny's with nearby rival Coffee Dans, Butler, who has since sold his interest in the operation, renamed his store Denny's in 1956.
Besides spreading across the United States, Denny's coffee shops have been opened in Mexico, Canada, Japan and the United Kingdom.
The company returned to its roots as a doughnut shop by merging with Winchell's Donut Houses in 1968. Nearly 60% of Winchell's, which operates or franchises approximately 740 doughnut houses, was sold to the public in December, 1986.
In 1983, the company bought the fast growing 19-restaurant El Pollo Loco chain. El Pollo Loco, which means the Crazy Chicken in Spanish, specializes in Mexican style charbroilled chicken.