Foodmaker Deal Joins Chi-Chi’s, El Torito Chains : Restaurants: The new company, 33%-owned by Foodmaker, will compete against Pepsico’s Taco Bell chain.

Backed by two takeover specialists, Foodmaker Inc. proposed Thursday to spin off its Chi-Chi’s restaurants, the No. 1 Mexican sit-down chain, into a new company that would also gobble up No. 2 chain El Torito.

Foodmaker would own one-third of the new company, whose proposed chain of about 350 Mexican restaurants would be pitted against food and beverage colossus Pepsico Inc. in a national Mexican food fight.

Pepsi’s Taco Bell fast-food chain announced plans Tuesday to create a chain of 300 to 500 sit-down Mexican restaurants.

The deal would give San Diego-based Foodmaker $270 million before taxes, which would mainly be used to reduce its $500-million debt. That would help it continue recovering from a Pacific Northwest poisoning outbreak last winter traced to tainted hamburgers served at its Jack in the Box chain.

It also would bail out bondholders in El Torito’s parent, Irvine-based Restaurant Enterprises Group, who would receive $235 million in cash and new notes for their $275 million in old notes.

REG, which also owns the Carrows and Coco’s restaurant chains, defaulted on bond interest payments in December after a leveraged buyout soured.

Fred Fleischbein, a food industry consultant with the Olson Group in Chicago, said the torrid growth of the Mexican food market has cooled markedly in recent years.

Still, growth continues, and Fleischbein said there is probably room for both chains, presuming that they succeed in offering predictable good service and relatively low-priced food. General Mills’ Olive Garden and Red Lobster restaurant chain may feel the competition, he said.

“What people have found is that they like Mexican food because of the value. You just feel full after eating the frijoles and all. There is room for growth in the value area,” he said.

There are 236 restaurants, some franchised, under the Chi-Chi’s banner, mainly in the Midwest and East. El Torito has 175, mainly in the West. They compete directly in fewer than 30 markets.

Foodmaker’s proposal calls for the deal to be completed through an REG Chapter 11 bankruptcy proceeding, combining REG and Chi-Chi’s. Two-thirds ownership would go to investment firms controlled by 1980s buyout figures Leon Black and Leonard Green.

Black’s Apollo Advisers and Green’s Leonard Green & Partners would contribute $108 million; the $270 million in cash for Foodmaker would be raised by selling new notes.

REG was created in a December, 1986, management buyout of W.R. Grace & Co.’s restaurant operations. It was financed with two bond issues from Drexel Burnham Lambert Inc., the junk bond powerhouse where Black was the head of mergers and acquisitions.

Foodmaker was publicly held until 1988.