In a shift from fast-food fare to sit-down dining, Los Angeles-based Collins Foods International will sell its domestic Kentucky Fried Chicken outlets and beef up its investment in the Sizzler restaurant chain, company officials said Tuesday.
Collins will sell its 209 Kentucky Fried Chicken restaurants to soft-drink and fast-food giant Pepsico Inc. in a complicated all-stock deal valued at about $123 million. In addition, Collins will merge with Pepsico in early 1991. Although Pepsico will be the surviving company, Collins will not disappear entirely.
As part of a convoluted reorganization, Collins will transfer all of its assets that are not related to Kentucky Fried Chicken in the United States to a new company. Those assets include 64 Kentucky Fried Chicken and 32 Sizzler restaurants in Australia and 66% of Sizzler Restaurants International.
The revamped Collins--whose name has yet to be decided--will try to buy the shares of Sizzler that it does not already own. Christopher R. Thomas, Collins vice president for finance, said that Sizzler has 16.3 million shares outstanding, of which Collins owns 10.8 million.
The so-called New Collins will exchange 1.25 shares of its own stock for each of the 5.5 million shares of Sizzler that it does not currently own. Thomas would not put a price tag on the deal.
Analysts said it is almost impossible to figure out the value of the New Collins shares because the company does not break out Kentucky Fried Chicken and Sizzler earnings. The Pepsico shares will go directly to Collins shareholders and will not be part of the Sizzler deal.
"Pepsico has expressed interest in our restaurants many times over the years," Thomas said. The reorganization "will allow management to focus energy and financial resources on the development of the Sizzler business . . . and international operations where there is higher growth."
Analysts estimate that Pepsico operates roughly 25% of the Kentucky Fried Chicken restaurants United States and that its purchase of Collins' 209 outlets will only increase its holdings by a few percentage points.
Restaurant analysts were mixed Tuesday on the significance of the Collins revamping and deal with Pepsico. But they were unanimous about who wins in the deal: both Collins and Pepsico.
Stockholders of Collins Foods will receive 4.9 million shares of Pepsico common stock. Pepsico shares closed at $25.125 on the New York Stock Exchange on Tuesday, up 25 cents. That makes the deal worth about $123 million.
While that works out to be only about $500,000 per chicken restaurant, "considering the operating profits Kentucky Fried Chicken was generating, it's probably a good deal," said James Thayer, an analyst at Bear, Stearns & Co. in New York.
"Pepsi has been trying to buy KFC outlets so it would have more control over spending on the outlets, what they look like, what they did," Thayer said. "Collins has been pressuring Pepsi for more menu latitude. Pepsi has been going slower than Collins would have liked."
Anton Brenner, president of Altman, Brenner & Wasserman, in New York, called the structure of the deal "a little unusual" but said that all parties involved did well.
"This is the kind of a deal where both parties end up getting what they want," Brenner said. "It's a way for Pepsi to be more aggressive in upgrading stores, which will help it do business. Collins wasn't going to do that. Collins is better off focusing efforts on what they do want to invest in."
Collins stock closed at $17.75 on the New York Stock Exchange on Tuesday, up 50 cents. Sizzler stock closed at $16.50 in over-the-counter trading, down 25 cents.