Carl’s Jr. Parent ‘Prime Takeover Candidate,’ Says Industry Analyst : Finance: The Anaheim company’s price per share could reach $12 if its restructuring is successful, the report explains.
Embattled Carl Karcher Enterprises is a “prime takeover candidate,” a New York-based industry analyst said Tuesday.
Salomon Brothers analyst Donald A. Zwyer also said that the parent company of the Carl’s Jr. restaurant chain is undervalued and that its price per share could rise to $12 if an ongoing restructuring is successful. Zwyer’s pronouncement helped drive the company’s stock up by 75 cents to $9 in Nasdaq trading on Tuesday.
The analyst stopped short of predicting that an acquisition will occur, and he would not identify potential buyers. But in a research report released Tuesday, Zwyer said that “an acquisition . . . is justifiable” given Karcher Enterprises’ cash flow, name recognition for the Carl’s Jr. chain in Southern California and the company’s “well-situated” restaurant locations.
Company President Donald E. Doyle is “under tremendous pressure to perform or face the prospect of a takeover battle,” Zwyer said. The analyst suggested that Karcher Enterprises might be acquired by a competitor who would then merge the Anaheim-based company with its own operations.
The price tag for the 649-location Carl’s Jr. chain would be determined by “how successful management will be in turning around the company,” Zwyer said. An ongoing restructuring has included layoffs at Karcher Enterprises’ Anaheim headquarters and a new Carl’s Jr. menu that management thinks will sate consumer demand for better value.
While Karcher Enterprises shares have been trading at about $8 in recent weeks, the stock hit a 52-week high of $11.125 in October, 1992, shortly before the company rejected a leveraged buyout offer by founder Carl N. Karcher and Freeman Spogli Co., a Los Angeles-based investment firm. The company reported a $5.5-million loss on $502.6 million in revenue for the fiscal year ended Jan. 25.
Doyle and a majority of the company’s seven-member board are at odds with founder Karcher over the best strategy for the restaurant chain’s future. Karcher, who on Oct. 1 was pushed out as chairman of the company he founded 52 years ago, also is trying to solve personal financial problems generated by a string of soured investments. Most of the 5.4 million shares of Karcher Enterprises stock that the founder holds have been pledged as collateral for personal loans.
Earlier this month, Karcher was forced to turn over control of 461,000 shares of stock to a group of Orange County investors who paid off a $4.5-million loan on which he had defaulted. The same investors are now negotiating to acquire a larger, $23.8-million loan that Karcher secured from Union Bank by using 3.9 million company shares as collateral.
Zwyer suggested that the “potential sale” of Karcher’s remaining shares in the Carl’s Jr. chain “may be viewed as a negative overhang on the company’s stock price. . . . However, such a sale could also be a positive catalyst if it leads to the takeover of the entire company.”
Zwyer said the company’s “inherent value limits the downside risk” of acquiring Karcher Enterprises shares. And he said that Doyle’s restructuring plan--if successful--will bolster earnings.
