Foodmaker OKs $247-Million Management-Led Buyout Offer
Foodmaker Inc., operator of the Jack in the Box fast-food chain, has agreed to a $247-million, management-led buyout just 18 months after it sold its stock to the public, the San Diego company said Monday.
The move by Foodmaker, which recently acquired Chi-Chi’s, a Louisville, Ky.-based chain that operates 200 dinner restaurants in the East and Midwest, was apparently motivated by management’s belief that the company’s stock was undervalued.
Foodmaker has signed a definitive agreement to merge with FM Acquisition, a newly formed company that is partly owned by Gibbons, Green, Van Amerongen,an investment banking firm with offices in Los Angeles and New York that specializes in corporate buyouts. Gibbons Green serves as general partner of two investment partnerships that own 29% of Foodmaker’s 12.4 million outstanding shares.
FM Acquisition has offered $19.125 each for the Foodmaker shares that it does not already control. The tender offer is subject to at least 6.2 million shares of common stock not controlled by Gibbons Green being tendered. In addition, holders of $300 million in Foodmaker debt also must approve the buyout, and FM must secure $300 million in financing needed to accomplish the deal.
The $19.125-per-share price is “fair . . . (because) the market has significantly undervalued (Foodmaker’s) stock” since its initial public offering in February, 1987, according to Foodmaker Chairman and Chief Executive Jack W. Goodall,who owns 1.8% of Foodmaker’s shares. Goodall and other Foodmaker executives are expected to take equity positions in the new, privately held company.
Foodmaker will “solicit, consider, evaluate and make recommendations” regarding other proposals to acquire the firm, according to a company spokesman. Gibbons Green will sell its Foodmaker shares to “any party which offers . . . (terms) more favorable than the highest price” offered by FM Acquisition, according to the spokesman.
Restaurant industry analysts described the $19.125-per-share offer as a good deal for shareholders. Foodmaker, which went public at $13.50 per share, has traded as low as $5.75 over the past year. Its stock closed up $7.125 on Monday at $18.78 after hitting a new high of $19.25 as 1.3 million shares changed hands.
Monday’s announcement prompted speculation that other potential suitors might appear.
The $19.125-per-share offer is “fair but it might cause someone else to take a good hard look at Foodmaker,” according to Barry M. Ziegler, a New York-based analyst with Anthony Tucker & R. L. Day.
Foodmaker is “the most attractively valued company in the restaurant business today, based on cash flow,” according to Jay H. Freedman, a New York-based restaurant industry analyst with Kidder, Peabody & Co. In recent months, Freedman has suggested that Foodmaker would be taken private.
That prediction was based upon the fact that Foodmaker’s earnings have grown while most of the restaurant business has been stuck in a “slow- to no-growth period” for nearly five years.
“The only surprise is that they’d once been private and had gone public,” Ziegler said. “The stock was definitely undervalued relative to the company’s record and their performance in the (slow-growth) restaurant environment.”
The buyout announced Monday would be the second for Foodmaker. Gibbons Green helped Foodmaker’s current executives buy the company from St. Louis-based Ralston Purina in October, 1985. That deal included Jack in the Box and a formal dinner house chain that subsequently was sold.
During the third quarter ended July 3, Foodmaker completed a debt restructuring that used proceeds of a $350-million public bond offering to prepay higher interest notes incurred during the $230-million Chi-Chi’s acquisition in February.
The prepayment generated an extraordinary $10.3 million after-tax charge that resulted in a $4.5-million net loss for the third quarter. However, revenue for the 40-week period ended July 3 rose by 10.6% to $157.5 million.
TOP 20 FRANCHISE RESTAURANTS
‘87 revenue Rank Restaurant (in billions) No. of Units 1 McDonalds $14.3 9,911 2 Burger King 5.2 5,179 3 Kentucky Fried Chicken 4.1 7,522 4 Hardee’s 3.1 2,912 5 Pizza Hut 3.0 6,163 6 Wendy’s 2.8 3,848 7 Domino’s Pizza 1.9 4,279 8 International Dairy Queen 1.89 5,002 9 Taco Bell 1.5 2,682 10 Denny’s 1.2 1,221 11 Arby’s 1.0 1,848 12 Big Boy 0.95 950 13 Sizler 0.75 567 14 Long John Silver’s 0.74 1,420 15 Dunkin’ Donuts 0.73 1,669 16 Little Ceasars 0.725 1,820 17 Shoney’s 0.719 604 18 Ponderosa 0.675 657 19 Jack in the Box* 0.65 900 20 Baskin-Robbins 0.654 3,398
*Does not include Chi-Chi’s acquisition Source: Restaurant Business magazine, March 20, 1988
