Carl Karcher’s Bid to Take Chain Private Is Rejected : Fast food: Outside directors declare founder’s $9.50-a-share offer to be too low. Analysts, citing his missteps, seem to agree.
Outside directors of Carl Karcher Enterprises on Friday rejected a bid by the company’s founder to take the fast-food firm private. Instead, they recommended that the company address operating problems at its Carl’s Jr. hamburger chain.
A three-member directors’ panel said Friday that it considered a $9.50-a-share bid by company founder and Chairman Carl Karcher Jr. and the Los Angeles investment firm of Freeman Spogli & Co. to be too low.
“In view of the longer-term prospects for the company, it would not be in the best interests of shareholders to accept” the $171-million offer, said Director Peter Churm, who headed the review panel. Churm is chairman emeritus of Furon Corp., a plastics manufacturer in Laguna Niguel.
In addition, Churm said in a statement that “the committee has recognized the need for the company aggressively to address operational issues in order to achieve its full potential.”
The carefully worded statement appeared to support the views of some securities analysts who maintain that Karcher has made a series of management missteps and failed to make key appointments, causing the Anaheim-based company to fall behind fast-food rivals.
Karcher’s lawyer, Andy Puzder of Costa Mesa, said his client is “disappointed and he hopes they will reconsider.” There was no word from Freeman Spogli about whether the partnership intends to submit a more generous offer for the 600-restaurant chain that Karcher founded as a single hot dog cart in Los Angeles in 1941. The partnership, which submitted its bid on Nov. 17, had previously said that it would not offer more than $10 a share.
Company officials said that others have expressed interest in making a competing offer for Carl Karcher Enterprises, but none have come forward so far. Hopes of another bid had pushed the stock price past the $10.50 mark in recent weeks. But the price settled Friday at $9, down 50 cents in over-the-counter trading.
Analysts said the decision of the outside directors was appropriate. They said Carl Karcher Enterprises’ stock is undervalued, given the company’s size, prime real estate locations and reputation. In good times, they say, the stock should be trading upward of $13 a share.
“No doubt about it, the company’s value is worth 50% more,” said Bob Chapman, portfolio manager at the investment firm of NatWest Markets in New York. “The rule of thumb is it’s never smart to sell your company at the bottom of a cycle. You have micro problems at the company and macro problems in California.”
Broker Bill Davenport with the Kidder Peabody office in Newport Beach said the committee “took a nice, long-term approach.” He added: “If things were properly run, they could make more money.”
In the third quarter ended Nov. 2, Karcher reported earnings of $1.3 million, down from $1.9 million for the same period last year. Revenue was $112.8 million, down from $123.6 million last year. The company blamed the recession, costs associated with closing a food-preparation plant in Anaheim and higher food costs from outside suppliers for the drop.
Dave Rose, an analyst for the brokerage of L.H. Friend, Weinress & Frankson, said “long-term holders of the stock ought to be very happy with the current outcome.”
