Fidelity National Spices Up Its Stakes
Restaurant baron William P. Foley II on Monday expanded his fast-food empire by agreeing to acquire control of the Newport Beach-based Green Burrito Mexican-style chain.
The unexpected deal, scheduled to be completed this week, calls for Irvine-based Fidelity National Financial Inc. to acquire 1 million shares of Green Burrito operator GB Foods Corp., along with stock warrants that, if exercised, would give Fidelity National 41% of GB Foods’ shares.
Foley is chairman of Fidelity National, one of the nation’s largest title insurers, and Anaheim-based CKE Restaurants Inc., parent company of the Carl’s Jr. chain. The companies didn’t reveal financial terms of the stock purchase, in which GB Foods Chief Executive Officer William M. Theisen sold shares to Fidelity National. But sources said the deal is valued at about $6 million.
Theisen, GB Foods’ principal shareholder, will resign, along with chief financial officer George J. Kubat and a director, Michael J. Scherr.
Chief Operating Officer Nicholas Caddeo will remain with GB Foods, and the company’s management structure will be reviewed at an upcoming board meeting, the companies said.
Foley described the deal as “an excellent investment” that fits Fidelity’s strategy of diversifying into businesses that are not sensitive to interest rates. In recent years, Fidelity National has acquired stakes in various real estate services companies.
They also would seem to benefit the Carl’s Jr. chain, which operates 63 dual-branded restaurants that serve both Carl’s Jr. and Green Burrito fare.
CKE recently said it would add Green Burrito items in as many as 300 restaurants. CKE executives have credited the addition of Green Burrito’s fast food with helping to make Carl’s Jr. restaurants more attractive to consumers who are fed up with burgers.
The dual-menu concept also has helped GB Foods’ bottom line. The chain has struggled to turn a profit from restaurant operations, reporting a $48,000 net loss on $5 million in revenue during 1996.
But powered largely by dual-menu agreements with CKE and a few other restaurant operators, GB Foods in May reported a $99,000 first-quarter profit, compared with a loss of $242,000 a year ago. Revenue rose 4% to $1.2 million from $1.16 million.
GB Foods has gradually been selling off its company-owned stores and concentrating on its franchising business. Only seven of the chain’s 134 locations are company-operated, and of its 127 franchised stores, 84 are inside other chains’ restaurants.
“With this deal, we’re going to be getting into a franchise business, not the intricacies of restaurant operations,” said Andrew F. Puzder, Fidelity National’s executive vice president. “And, in the process we get GB Foods into friendly hands.”
CKE didn’t make a bid for GB Foods because “it has a lot on its plate” with the recent acquisition of the 3,100-unit Hardee’s Food Systems Inc., said Puzder, who also serves as executive vice president of CKE.
The deal calls for Puzder, Foley and Fidelity National President Frank P. Willey to join GB Foods’ board.
The deal further strengthens the close-knit nature of Fidelity National’s relationship with CKE. An investment group led by Foley controls CKE, and Fidelity National holds its own, small stake in CKE.
In addition to serving as chairman of Fidelity National and CKE, Foley also serves as a board member at Rally’s Hamburgers Inc. and Checkers Drive-In Restaurants Inc.--two chains in which CKE holds investments.
Theisen was involved in a rough-and-tumble chapter in the personal and business life of CKE founder and Chairman Emeritus Carl N. Karcher. In 1993, Karcher ignited a bitter boardroom disagreement by demanding that CKE experiment with a dual menu featuring Carl’s Jr. and Green Burrito fare.
The board dispute escalated and Karcher was eventually kicked out as chairman. He returned as chairman emeritus shortly after a Foley-led investment group took control of CKE in 1994.
Dual-menu restaurants subsequently began popping up all across the country. Hardee’s for example, operates 15 restaurants that feature Green Burrito fare and CKE has signaled its intent to add Mexican-style fare at hundreds of its locations.
CKE stock fell Monday by $1.69 a share to $33.56 in New York Stock Exchange trading while GB Foods closed unchanged at $9 in Nasdaq trading.
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GB Foods Corp. at a Glance
Headquarters: Newport Beach
Chairman/president/CEO: William M. Theisen (to resign as part of the deal)
Business: Operates and franchises The Green Burrito, a Mexican fast-food restaurant chain
Restaurants: 134 (127 franchises, seven company-owned); 63 co-branded with Carl’s Jr. restaurants, 15 with Hardee’s restaurants
Employees: 87
Status: Public
Exchange: Nasdaq SmallCap
FINANCIAL PERSPECTIVE
(Please see newspaper for Sales and Net Income/Loss charts)
Sales
(thousands)
Net Income/Loss
(thousands)
Tasty Trend
GB Foods stock reached a 52-week high of $10.25 during trading Monday but closed at $9. In recent months, its weekly closing price averaged $5.60 per share.
(Please see newspaper for full chart information)
April
April 25: $5.00
Monday’s close: $9.00
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Source: Bloomberg News, Fidelity National Financial; Researched by JANICE L. JONES
Foley’s Many Hats
William P. Foley II built Fidelity National Financial into one of the nation’s largest title insurance firms. At CKE Restaurants Inc., he recently engineered the acquisition of Hardee’s Food Systems Inc. and has picked up stakes in other fast-food chains:
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Position Company Chairman/CEO Fidelity National Financial Chairman/CEO CKE Restaurants Director Rally’s Hamburgers Director Checker’s Drive-In Restaurants Director GB Foods (pending sale)
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Source: Fidelity National Financial, Times reports
Los Angeles Times
