Karcher May Lose Shares in Bank Sale
The financial pressure on Carl N. Karcher mounted Thursday as a bank threatened to sell some of his Carl’s Jr. stock out from under him unless he repays a $4.8 million loan today. Sale of the stock would hurt Karcher’s chances of waging a successful battle to retake control of the company he founded 52 years ago. Karcher was ousted as chairman of the fast-food chain last week.
“We’re not particularly worried” about the demand for payment, said Andrew F. Puzder, Karcher’s lawyer. “We think we’ll be able to deal with the situation.”
Disclosure of the bank’s plans came as friends held a rally near the company’s Anaheim headquarters to support Karcher. About 250 people turned out for the hastily organized show of appreciation. Karcher made a brief appearance and vowed not to give up.
Any fight is likely to involve Karcher’s stock, some of which he used to back the bank loan. It represents about 10% of his shares in Carl Karcher Enterprises Inc. Their sale would reduce his stake from 34% to less than 31%.
A quick sale of Karcher’s stock by Commercial Center Bank in Santa Ana, both analysts and the company fear, would depress the market price of shares in Karcher Enterprises.
The stock sale would begin Tuesday, according to a Securities and Exchange Commission filing, if the loan is not repaid.
“If worse comes to worst,” Puzder said, “the bank will sell 600,000 shares of stock--that’s if we don’t come up with something.”
This week, Karcher charged that he was the target of a conspiracy by board members to oust him. Directors have called the 76-year-old founder an autocrat unwilling to turn over operations to a successor.
Most recently, Karcher has been trying to persuade the company’s directors to test his idea of selling Mexican-style food from the Green Burrito chain alongside hamburgers, chicken sandwiches and salads at some of the 650 Carl’s Jr. outlets.
But the board rejected his marketing idea and instead backed company President Donald E. Doyle Jr.’s program of offering food items at lower prices. On Oct. 1, the directors voted Karcher out as chairman. He remains a board member.
The loan from Commercial Center is one of two personal loans on which Karcher is in default. He pledged 998,700 shares for the Commercial Center loan two years ago. At the same time, he pledged 3.56 million shares for a Union Bank loan that, with unpaid interest, now amounts to $25.1 million. The proceeds were invested in real estate projects that since have gone sour, leaving Karcher in financial straits so precarious that his lawyer recently advised him to consider personal bankruptcy.
A total of 73% of Karcher’s stock is backing the two loans.
Puzder pointed out that more stock is pledged to the banks than would be needed to pay off the debts. Commercial Center, for instance, would have to sell about 600,000 shares at Thursday’s closing price of $8 apiece to satisfy the debt.
But Karcher does not want to give up any of his stake in the company because he may need every vote possible if he wages a proxy fight to get rid of the five board members who ousted him. Only his son, Carl L. Karcher, also a director, has sided with him.
Karcher’s lawyers and financial advisers said Thursday that he is considering the next step in his effort to regain control of the company.
“We haven’t ruled anything out except quitting,” Puzder said. “There’s an internal timetable, but that’s dependent on Mr. Karcher deciding what option he wants to take.”
Among Karcher’s choices, Puzder said, are seeking shareholder support to vote out the board, finding a buyer for Carl Karcher Enterprises, selling his personal stake in the company and “convincing the other side that Carl is correct.”
A spokesman for Karcher Enterprises would not comment on the founder’s SEC filing, and executives at the two banks would not comment on the status of the loans.
Puzder said Union Bank has not made a similar demand for repayment.
Doyle has said previously that he asked executives at both banks, should they seize Karcher’s stock, to offer the shares to the company first because dumping the shares on the open market could drag down the stock price.
“Any time there’s a large volume of stock traded in one day, stock prices can be hurt,” said Doug Christopher, analyst for the Los Angeles brokerage of Crowell, Weedon & Co.
Despite the bitter fight within the company, its stock has escaped a dramatic decline, dropping only about $1 a share since the end of August, when Karcher first announced his feud with the board.
“The stock is in a lull right now. No one knows which way to go,” Christopher said.
Furthermore, because Karcher sits on a third of the stock, the share price has remained relatively stable, Christopher said.
Puzder said Karcher has been talking to several people about buying some of his stock. He would not identify them but did say that William Theisen, chairman of Green Burrito parent company, GB Foods Inc., is not one of the parties.
Karcher Enterprises’ directors have said that Karcher’s plan would benefit only the founder because, had it gone through, he would have received a much-needed $6-million personal loan from the chairman of Green Burrito’s parent company, GB Foods Inc. in Anaheim. Karcher denies the plan is tied to the loan.
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Times staff writers Susan Christian, Greg Johnson and Chris Woodyard contributed to this report.
* KARCHER HAILED: He promises at rally to fight on for control of Carl’s Jr. D1
