Investors Have a Deal for Carl’s Jr. : Management: O.C. group that will control 40% of Karcher Enterprises seeks a chairman emeritus role for the founder.

William P. Foley II used a no-nonsense style to stitch together a handful of tiny companies in Arizona 10 years ago and create the nation’s fifth-largest title insurer.

Along the way, he chalked up consistent earnings and revolutionized the way the industry works.

Now Foley is taking the same approach to a deal that will give a group of Orange County investors control of 40%--the single largest block--of the Carl’s Jr. restaurant chain founded by Carl N. Karcher in 1941.

Foley is in many ways a kindred spirit to Karcher, who was a practicing entrepreneur before management consultants coined the term. “I do feel like I have a kinship with him,” Foley said. “He started with a single hot-dog stand and built this company.”

The potential for profit, of course, is also driving Foley’s alliance with Karcher, 76, who has been in business longer than the 48-year-old Foley, has been alive. Foley’s stated goal is to increase the value of the fast-food company’s stock.

Foley and Karcher, associates say, share an approach that is universal among entrepreneurs: They identify market niches and charge hard until they’ve filled them.

“Carl is an entrepreneur,” said James Cavaricci, 48, one of the investors teaming with Foley. “He’s no spring chicken, but (Foley) will give him a shot in the arm. . . . They both want to bring up the stock.”

Karcher was ousted Oct. 1 from the chairmanship of Carl Karcher Enterprises, parent company of Carl’s Jr., after a bitter dispute with the board of directors. He has vowed to fight back and reclaim a position with the company, but he has been hindered by personal financial woes.

Karcher’s battle with the board could resume Wednesday. In documents filed Friday with the U.S. Securities and Exchange Commission, Karcher said he is hoping for an “amicable” settlement. But, he said, if the company does not hire him as chairman emeritus, as the investor group proposes, he may seek shareholder support to remove some current directors and give their seats to members of Foley’s group.

Foley said of Karcher’s travails: “I feel for him, but that doesn’t mean I’m in favor of his assuming a (hands-on) management role. . . . He has good ideas and can play a role in marketing.”

Carl’s Jr. will need good ideas and savvy marketing to reverse its declining sales, and the company appears to have the personnel to help bring that about. The directors brought in former Kentucky Fried Chicken executive Donald E. Doyle early this year to serve as president. Doyle, in turn, raided Taco Bell and hired away marketing vice president Karen Eadon. Cost-cutting instituted by Doyle has helped the company eke out a profit. But same-store sales--business at outlets open more than a year--have been falling for more than three years. Such sales are considered a critical measure of how well a restaurant chain is performing.

Doyle’s critics--most of whom are Karcher allies--maintain that Doyle’s approach of cutting prices and adding products is failing to stem the revenue drop.

Foley says he can see Carl’s Jr. eventually expanding into a nationwide chain from its current base of 649 stores, most of them in California. But first, he said, Karcher Enterprises must turn around same-store sales. “Doyle recognizes that, and that’s his primary focus right now,” he said.

Foley, Cavaricci and their fellow investors are working on a complicated deal, to be completed by Friday, that will transfer 3.9 million shares of Karcher Enterprises stock to a limited partnership to be directed by Foley. Karcher will be a member of the partnership and have a 15% stake in it.

The group has agreed to pay off a delinquent $26-million personal loan to Karcher from Union Bank. In return, Karcher will transfer to the partnership the 3.9 million shares he used to guarantee the loan.

Karcher, Foley, Cavaricci and other investors signed a letter of intent Friday to pay off the Union Bank loan; acquire the shares, which represent 22% of the stock; and vote the shares as a block. Foley and fellow investor Ron Lane earlier amassed 650,000 Karcher Enterprises shares by helping Karcher satisfy a delinquent $4.8-million personal loan.

Karcher allies say the group’s stake comes to about 40% when shares held by Karcher and his family are included.

Members of Foley’s group say that sizable a stake in Karcher Enterprises warrants that they be represented on the company’s board and that they hope to accomplish that at Wednesday’s board meeting. Foley said he also hopes to add to the board a fast-food industry executive not yet identified.

“The directors haven’t agreed to put Lane and me on the board yet,” Foley acknowledged Friday. “And they’ve been uncooperative on Karcher becoming chairman emeritus.”

Although the partners want Karcher to play a role at Karcher Enterprises, they do not propose that he be involved in day-to-day management. Even Karcher, a spokesman said, agrees that it’s best for someone else to handle daily management duties.

Foley said his respect for Karcher is tempered by business sense: Foley invested in Karcher Enterprises, he said, because he thinks that with professional management of the company, the share price could be boosted. And, as a major shareholder, he has a personal stake in seeing the stock rise.

In discussing the company’s current direction, Foley describes Doyle, who has drawn Karcher’s wrath in recent months, as a talented businessman who has made the right moves: cutting costs and experimenting with low-priced menu items that compete with those offered by market leaders such as Taco Bell. Foley said he expects that Doyle will try other alternatives promptly--including a dual-menu idea--should the price-cutting experiment fail.

Foley expressed interest in offering a dual menu that would include regular Carl’s Jr. fare as well as Green Burrito-brand Mexican-style foods at some of the chain’s locations. He said he has spoken with William Theisen, chairman of Green Burrito parent company GB Foods, in recent months but would not give details of their talks.

A dispute over testing the dual-menu idea was a key factor in Karcher’s being removed as chairman of the Karcher Enterprises board. Doyle maintains that Carl’s Jr. would have little to gain from such an arrangement. He also said that Karcher stood to reap personal financial gains from GB Foods had the test been done.

Karcher, however, sees the Green Burrito idea as a fundamental element of the chain’s recovery, and he has denied that he stood to gain personally from the test.

Foley, Karcher and Doyle do agree that the company must boost same-store sales.

So do analysts. Karcher Enterprises’ stock will not do well on Wall Street until the company “does what’s necessary to get the return on investment,” said Donald A. Zwyer, an analyst with Salomon Bros. in New York. “They have to cut costs and restore same-store growth.”

Salomon Brothers has already issued a “buy” recommendation for Karcher Enterprises shares, and Zwyer predicts that the stock, which has traded at about $9 a share in recent weeks, could hit $15 in a year’s time.

Foley investment partner Cavaricci, who owns a clothing company in Los Angeles, is optimistic.

“I like to invest in good people,” Cavaricci said, referring to the partnership. “I learned that with my own company: I’m only as good as the people around me, and I don’t invest in losers. I look at the people behind the scenes.”

Cavaricci, who has put an estimated $3 million into the partnership, says he thinks a Karcher Enterprises turnaround is imminent.

It could happen, Zwyer said. “This seems like a very positive development,” he said of the deal. “The group will end up with approximately 30% control of company, . . . and their goal is very simple: enhance shareholder value.”