Heidi’s Yogurt Chain to Merge With Johnston Foods

Beleaguered Heidi’s Frogen Yozurt Shoppes has agreed to combine operations with a privately owned yogurt manufacturer--a move that will shift control from body-builder Heidi Miller, the chain’s founder.

Heidi’s said Thursday it has signed an agreement in principal to acquire Johnston Foods, a division of Button Industries of Los Alamitos.

C. E. Prichard of Pasadena, the sole shareholder of the company that owns Johnston Foods, will control about 45% of Heidi’s stock and will become the largest individual owner. In addition, Prichard will install a new management team at Heidi’s.

The agreement caps months of squabbling between Miller, 33, and dissatisfied Heidi’s franchisees.

In recent weeks, lawsuits and claims seeking an estimated $12 million have been filed against the chain. Unhappy franchisees contend that Heidi’s management made deliberate misstatements about potential store sales and misrepresented Heidi’s yogurt as being an original, secret recipe.

Button Industries is a holding company with annual sales of about $25 million, according to Prichard. Its Johnston Foods division two years ago bought the yogurt company--noted for its all-natural Johnston’s brand yogurt “in the little yellow cup”--from a French firm, which, in turn, had bought it from Beatrice Foods.

Today, Johnston Foods sells premium quality yogurt--as well as less-fancy and low-fat products--in 11 Western states. Its operations include a manufacturing plant in Sacramento, which will begin manufacturing soft yogurt for Heidi’s 89 stores once the deal is completed.

The combination of the Johnston and Heidi’s operations should generate annual revenue of about $15 million, making it the largest independently owned yogurt maker in the West, Prichard said.

“To me, there’s no better blend because Johnston is a yogurt specialist and Heidi’s is a yogurt specialist,” said Miller, who added that she agreed to the plan “for the benefit of the stockholders, the franchisees and corporate employees.”

Under the agreement between the two firms, Heidi’s will acquire Johnston Foods in exchange for 45 million newly issued shares of Heidi’s common stock. Prichard will then control about 45% of the 99 million shares of Heidi’s stock outstanding when the transaction is completed on about Oct. 15.

Other officers of the combined firm are to eventually receive an as-yet undetermined number of shares in the combined company.

Miller’s stake in Heidi’s will be reduced to about 24% from about 43% after the two firms are combined, based on recent filings with the Securities and Exchange Commission.

Executive Vice President Brian Pallas, who owns the same number of shares as Miller, also will own about 24% of the merged company.

William P. Evans, Button’s chief financial officer, will be appointed chief executive of Heidi’s. Charles Runyon, formerly a consultant to Button, this week became Heidi’s chief financial officer.

Miller will retain her title as president of Heidi’s, but there was uncertainty as to what responsibilities her job will include. Miller said she will be part of a management team that will run the day-to-day operations of the company.

Evans, however, said Heidi’s will be run by a management team composed of himself, Pritchard, Runyon and Stan Coop, president of Johnston Foods.

Miller “will be very active in the franchise operations (insofar) as advertising and quality standards that she’s set forth. . . . She’ll be in charge of marketing activity of franchise operations. Day-to-day management operations will be by me and the management board,” Evans said.

Both Evans and Pritchard stressed Heidi’s value to the company.

“Her assistance with the stores is absolutely necessary because of her name and because she has been noted (for describing) how these products are very healthy and nutritious,” Pritchard said. “She isn’t being forced out.”

Pallas will become a consultant to the company, Pritchard said.

To turn around Heidi’s, Pritchard said he plans “quick international expansion,” initially bringing Heidi’s franchise operations into London and Japan where “the soft-serve market is about to boom.”

Pritchard said he expects some layoffs at Heidi’s headquarters in Laguna Hills.

The announcement was received favorably by analysts and franchisees.

“It’s a way to take Johnston public at a very low cost--gaining access to financial markets and the ability to raise additional capital in the future,” said Jeffrey Kilpatrick, president of Newport Securities in Newport Beach.

“And Miller’s company is probably in bad enough financial condition that this is a way for her to maintain and keep some value of her company,” Kilpatrick said. “Owning a fairly small portion is better than having the company go into bankruptcy.”