Flagstar to Sell Canteen to British Caterer : Mergers: Compass Group will pay $450 million for the food services and vending business.

In the second takeover of a U.S. firm by a British company in as many days, restaurant operator Flagstar Cos. said Wednesday that it has agreed to sell the Canteen food service and vending machine business to British caterer Compass Group for $450 million.

Canteen provides food service and vending for a wide range of clients, from major business and industry locations to hospitals, retirement centers and correctional institutions.

Flagstar, the third-largest food services company in the United States, said it decided to sell Canteen so it could focus on its core restaurant business.

“The sale of our Canteen food and vending business will enable us to begin to reduce debt and focus our growth capital on our Denny’s, Hardee’s, Quincy’s and El Pollo Loco brands,” Flagstar Chairman and Chief Executive Jerome Richardson said.

Flagstar, with revenue of $4 billion last year, is 47%-controlled by Wall Street investment firm Kohlberg Kravis Roberts & Co.

The deal follows the announcement Tuesday by consumer products giant American Brands Inc. that it is selling its American Tobacco unit to Britain’s BAT industries for $1 billion and adds to the already-huge British investment in the United States.

Another British food and beverage giant, Grand Metropolitan, owns Minneapolis-based Pillsbury, the Burger King restaurant chain and ice cream maker Haagen Daz.

Compass said the chance to buy Canteen was too good to pass up. “We see this as a onetime opportunity to buy into the world’s biggest food services market,” Mike Bailey, who will head the business for the British company, told a news conference in London.

He indicated that Compass had been aiming for more gradual expansion, mainly targeting Europe.

Under the deal, Compass will gain franchise rights to Flagstar’s Los Angeles-based Mexican-style chicken chain El Pollo Loco and Denny’s in some U.S. markets, as well as exclusive use of the Denny’s and Quincy’s steakhouse brands in Britain and Europe.

Flagstar said Canteen’s Volume Services and TW Recreational Services businesses are not included in the deal.

Canteen had sales of more than $1 billion in 1993 and operating profit of $38 million, down from $49 million in 1992. It has 20,000 employees serving 12,000 food service accounts and more than 100,000 vending machines.

Compass, formed by a group of former managers at Grand Metropolitan in 1987, said it expects the acquisition to enhance its earnings immediately.

The British company, which also announced a 28% gain in pretax profit for the half year of $34.77 million, said it will fund the purchase with a stock rights issue, to raise $217.7 million, and bank borrowings.

Restaurant industry analysts in London said Compass might be setting too fast a pace for growth. It has expanded nearly fourfold since it sold stock in 1988, and last June it bought airport catering business Scandinavian Service Partner for $107.3 million.

“It’s possibly a little premature after their last acquisition,” one analyst said. “But on the other hand, when these opportunities come up, you have to take them.”