When it's time to do deals, San Diego-based Foodmaker Inc. turns to investor Leonard Green.
Green, 59, joined the board at Foodmaker, which owns the Jack in the Box fast-food chain, in 1985. During the late 1980s, Green's Los Angeles investment firms helped Foodmaker arrange financing for a management-led buyout and also for Foodmaker's 1988 acquisition of the Chi-Chi's Mexican-style restaurant chain.
According to Foodmaker executives, Green's investment company is playing an integral role in the bid to acquire financially troubled Restaurant Enterprises Group in Irvine in a deal valued at about $700 million. Foodmaker, Green and a second investment company said Thursday that they want to create a company that would acquire most of REG's 577 restaurants and Foodmaker's 236 Chi-Chi's locations. REG bondholders have approved the deal, but the sale hasn't been blessed yet by REG and W.R. Grace & Co., which controls REG.
The combination of 236 Chi-Chi's and REG's 120 El Torito locations would give Foodmaker and its investment partners the nation's largest collection of Mexican-style, sit-down restaurants. The deal would also pit Foodmaker against fast-food giant Taco Bell, the Pepsico subsidiary that entered the sit-down restaurant business earlier last week by purchasing the Chevys chain.
Green, founder of Leonard Green & Partners, has a reputation as a savvy and patient investor who takes a long-term stake in companies.
His participation in the REG deal "bodes well for REG surviving 1993 and going well into the 1990s," said Lloyd Greif, president of investment bank Greif & Co. in Los Angeles. "Len also knows food and food service, so with or without Foodmaker this deal makes sense."
Green is "very astute when it comes to investments," Greif said. "He clearly sees that underneath the coal there's a diamond. And as important, he's willing to invest the time and money to save that diamond."
REG isn't Green's first move into food and retail businesses.
In 1992, his firm acquired the Thrifty drugstore chain from Southern California Gas for about $275 million. At the time, business and civic leaders praised Green for taking over the troubled business.
Leonard Green & Partners also owns Carr-Gottstein Inc., Alaska's largest food and drug retailer, and Almac's Supermarkets Inc., a New England grocery-store chain. Carr-Gottstein registered with the Securities and Exchange Commission on May 21 for an initial public offering of its shares.
Foodmaker's other partner in the proposed REG deal is Apollo Advisors. That company is headed by Leon Black, the former managing director in charge of mergers and acquisitions for Drexel Burnham Lambert, once one of Wall Street's most powerful investment banks. Apollo, based in New York, manages and directs several large, private institutional investment funds with capital totaling more than $4 billion.
Though Apollo doesn't own a majority of REG's bonds, the company is a "substantial holder" of the Irvine-based company's bonds, Apollo spokesman Mike Weiner said. Apollo has held the bonds "for some time," Weiner said.
Apollo's ownership of those bonds probably helped the investment firm gain approval for the deal from a majority of REG bondholders. Apollo hopes to complete the deal "within six months," Weiner said. "The sooner the better for REG."