Carl’s Jr. Flies the Coop; New Firm Gets Boston Chicken
CKE Restaurants Inc. admitted Friday that it bit off more than it could chew when it acquired rights last year to build as many as 300 Boston Chicken stores in Southern California in five years.
The company, which wants to focus its resources on its 650-unit Carl’s Jr. chain, said it will turn over Southern California franchise rights to the popular Boston Chicken chain to a new company owned largely by Boston Chicken Inc., the Denver-based chain operator.
Anaheim-based CKE acquired the Boston Chicken franchise in Southern California in January, 1994, for an undisclosed price. At the time, company executives described the franchise as an antidote for flagging profits at the Carl’s Jr. fast-food chain, which had been buffeted by lower-priced competitors.
“The question is what changed, and the answer is that the capital intensity (of developing the Boston Chicken) chain is clearly a big issue,” said Loren Pannier, CKE’s chief financial officer. “The Carl’s side of the business is beginning to move in a positive direction, and there’s a growing need for capital for store remodeling and accelerating expansion.”
Pannier said the latest deal was driven by a demand by CKE Chairman and Chief Executive William P. Foley II that shareholder values be increased.
Industry analysts who have criticized CKE Restaurants for failing to pump money into the Carl’s Jr. chain welcomed the announcement.
“I’ve always been surprised that the company hasn’t concentrated its assets and resources on the Carl’s chain,” said Doug Christopher, an analyst at Crowell, Weedon & Co. in Los Angeles. “Let’s just hope they mean it this time.”
Foley, who led an investor group in late 1993 to take control of the chain, was named chairman in March, 1994, and soon voiced concern about the company’s direction under veteran industry food executive Donald E. Doyle, CKE’s president. Doyle, who had helped land the Boston Chicken franchise, resigned in October.
According to terms of the agreement announced Friday, Boston West, a new, privately held company, will take over operation of existing Boston Chicken stores developed by CKE’s Boston Pacific subsidiary. Boston Pacific President Kerry Coin and about 1,450 store employees will transfer to the new Boston West company, which will be located in an existing CKE building.
Boston Chicken Inc. will pump $65 million into the new company, and CKE will receive preferred stock it can convert later to a 35% stake in it.
