CKE Brokers $178.5-Million Deal Between Burger Chains

Checkers Drive-In Restaurants Inc. said it plans to buy Rally’s Hamburgers Inc. for about $178.5 million in stock and debt in a deal that would create a chain of 949 burger restaurants.

The deal, observers said, was brokered by CKE Restaurants Inc., the parent company of the Anaheim-based Carl’s Jr. chain. CKE owns stakes in both Rally’s and Checkers and CKE Chief Operating Officer Tom Thompson also serves as Checkers’ vice chairman and chief executive officer.

The agreement calls for Clearwater, Fla.-based Checkers to pay $113.5 million in stock and assume $65 million of Rally’s debt. Each share of Louisville, Ky.-based Rally’s stock will be converted into three shares of Checkers stock, and Rally’s outstanding warrants also will become exercisable for three shares of Checkers common stock.

The two chains that feature burger-based menus and double drive-through windows have struggled against larger competitors in recent years for market share. The two chains have combined revenue of $327.8 million--far less than market leader McDonald’s, with $10.7 billion in revenue.

While the chains are viewed as competitors, they operate largely in separate geographic areas. Rally’s locations are clustered in the Midwest, while Checkers operates in the Southeast. Rally’s has about 16 locations in California, but Checkers does not operate in the state.

Restaurant industry analysts have been expecting CKE to push the two chains together in a bid to achieve operating efficiencies that could bolster sales and profit. Now, restaurant industry observers are waiting to see if CKE tries to blend the proposed chain with the Carl’s Jr. operation to create a national chain.

The proposed deal was announced Tuesday. Checkers’ shares fell by 6.3 cents to $1.78 on Wednesday before trading was suspended. Rally’s shares rose by 6.3 cents to $4.06. Both stocks trade on the Nasdaq market.