Karcher Plan Is Opposed by Chain’s CEO

Hamburger magnate Carl N. Karcher, advocating a new strategy for Carl’s Jr. that might also improve his own troubled finances, was rebuffed Wednesday by the chief executive of the company he founded.

Karcher, company chairman and longtime advertising pitchman for the fast-food chain, “is having significant personal financial difficulties,” said Donald E. Doyle, president and chief executive of Carl Karcher Enterprises.

But, he added, “what Carl is trying to do is not in the best interest of our other shareholders.”

Karcher has been promoting a plan to sell another company’s Mexican food at Carl’s Jr. but has met opposition from the board of directors. Last week, he threatened a fight to regain control over the company he created 52 years ago.

Company directors’ recent rejection of Karcher’s plan--which included a proposed $6-million personal loan for Karcher--left the firm’s 76-year-old founder “very upset,” Doyle said. “He said (board members) were forcing him into bankruptcy.”

The conflict at Carl’s Jr. broke into the open after directors rejected Karcher’s proposal that Carl’s Jr. restaurants sell Mexican-style food produced by GB Foods in Anaheim, which operates the Green Burrito restaurant chain. Board members maintain that the GB Foods plan runs counter to the company’s ongoing restructuring.

Karcher and his son Carl L. Karcher voted for the proposal, but Doyle joined four outside board members who considered the deal to be “detrimental” to the company. Karcher reportedly has asked board members Daniel W. Holden, Peter Churm, Kenneth O. Olsen and Elizabeth A. Sanders to resign, but evidently has not made a similar demand of board members Doyle or his son Carl.

Company executives said earlier that federal regulations prohibited them from discussing Karcher’s proposal until they had filed related documents with the federal Securities and Exchange Commission. Those filings were made Wednesday, clearing the way for Doyle to speak. Doyle and Sanders spoke with reporters Wednesday in a telephone conference.

A close friend of the Karcher family for 20 years, Sanders said she voted against the plan because it would not benefit all shareholders. Sanders voted against the deal despite Karcher’s plea that the rejection would “would ruin him” financially.

Karcher, who met late Wednesday afternoon with Sanders and Olsen in an attempt to settle the feud, has declined to discuss his personal finances. However, Karcher’s personal attorney has recommended that the hamburger magnate consider a personal bankruptcy filing, a recommendation he said Karcher rejected.

Karcher spokesman Edward Pasquale said Wednesday that some company board members suggested that the chairman resolve his personal financial crisis by entering bankruptcy. “He told them no,” Pasquale said. “He’s 76 years old, he could take a deal and go sit on the beach or whatever. But he won’t. Carl feels very strongly about this.”

Karcher’s personal fortunes are being squeezed by the company’s weak performance and his personal investments in the soured real estate market.

Two banks are threatening to take control of 23% of Carl Karcher Enterprises’ common stock, shares that Karcher and his wife own through a family trust. The Karchers used the shares to secure loans that now are in default.

Doyle said that the GB Foods’ proposal included a $6-million loan to help Karcher correct his personal financial problems, but that “it was difficult to see the benefits to Carl Karcher Enterprises.”

In the SEC filing, the company asked Karcher to explain “a potential loan of more than $40 million” that Karcher allegedly would receive if the GB Foods deal was completed. The $6-million loan would have come from William Theisen, chairman of GB Foods. But a Karcher spokesman denied that a $40-million loan proposal had been made.

The documents also asked Karcher to say if control of the Karcher family’s 34% stake in the company would transfer to another investor if the deal were completed. And they asked him to identify potential candidates for the board if the threatened proxy fight materializes.

Pasquale on Wednesday declined to identify candidates other than Theisen. “We’re looking for people who are experienced in the restaurant industry, who are entrepreneurs,” Pasquale said. “We need people with vision and experience, like Mr. Theisen, who started Godfather Pizza, and sold it for hundreds of millions of dollars.”

But Doyle maintained that adding Green Burrito products clashes with “a strategy in place to solve (flagging company profits). . . . Directors are very willing to help Carl, but it needed to meet the test of being in the interest of all shareholders.”

Board members in the spring agreed to spend $10 million to buy back shares held by Karcher and his family. Karcher, through spokesmen, maintains that the aborted deal did not occur because the company demanded “proxy-like control” over his remaining shares. Doyle said the deal collapsed when the company’s share price fell, making it unattractive to Karcher.

In January, the company started a restructuring that included about 70 layoffs to reduce costs, a reduction in the chain’s menu items and an attempt to speed up service. Doyle said that adding Green Burrito products to the menu would run counter to those goals.

The company’s stock closed down 12.5 cents Wednesday at $8.75 in NASDAQ trading after the company said that second-quarter net income fell to $2.1 million from $3.2 million a year earlier. Revenue fell to $108.2 million, compared with $119.9 million. Same-store sales declined by 9%, a drop that Doyle blamed on the 648-unit chain’s heavy dependence on California.

Net income for the first half of the year fell to $3.1 million from $4 million and revenue fell to $248.1 million from $281.5 million.

Doyle linked the lower profit to discontinued operations, including the elimination of a securities trading department, and expressed confidence that an ongoing cost-cutting program and a new, “value” menu would bolster sagging revenue and profit.

The company is struggling to reverse its same-store sales decline, which began more than three years ago. During that period, monthly same-store sales have increased only twice, Doyle said.