Tricon to Buy A&W; and Long John Silver’s Chains

Fast-food restaurant giant Tricon Global Restaurants Inc., building on its successful strategy of offering customers a variety of menu items under one roof, said Tuesday it agreed to acquire the A&W; and Long John Silver’s chains.

Tricon, the Louisville, Ky., parent of Taco Bell, KFC and Pizza Hut, agreed to buy the two chains from closely held Yorkshire Global Restaurants for $270 million in cash, and would assume $50 million in debt. Tricon previously had signed a deal that added A&W;’s root beer floats and Long John Silver’s fish platters to menus at some of Tricon’s restaurants.

More than any other restaurant company, Tricon has embraced multi-branding. The chain now operates 1,500 combination restaurants and generates $1.5billion in annual sales from Taco Bell, KFC and Pizza Hut combinations. The addition of Long John Silver’s and A&W;’s fare should boost sales and profit, said Tony Howard, an analyst with Hilliard Lyons.

Tricon’s stock, however, fell $1.91 a share to $55.60 on the New York Stock Exchange.

A&W;, billed as the nation’s oldest fast-food chain, was founded in 1919 and has 970 restaurants. Long John Silver’s, founded in 1969, has 1,225 outlets and is the nation’s largest fast-food seafood chain. Together, the chains generated sales of nearly $1.1 billion last year.

With the fast-food market becoming evermore competitive, burger, chicken and pizza chains are looking for new ways to grow, said Tim Carlin, a senior associate at Technomic Inc., a restaurant research and consulting firm near Chicago.

McDonald’s Corp. snapped up Boston Market and burrito-maker Chipotle to expand into the fast-growing quick-casual market. Similarly, CKE Restaurants Inc. has entered the booming sector with its purchase of the La Salsa Mexican-food chain.

Tricon, which also announced Tuesday it would change its name to Yum! Brands Inc. to reflect its growing stable of brands, has opted to focus on multiple branding. Chief Executive David Novak said multi-branding has proven popular with Tricon customers since its introduction seven years ago, and has bolstered its bottom line.

When single-concept restaurants are converted into multi-brand units, sales jump 20% to 30% and profit grows 25% to 40%, Novak said, helping Tricon restaurants close the gap between industry leader McDonald’s. Current average unit volumes at Tricon stores in the U.S. are about 60% of those at McDonald’s restaurants, which offer customers more meal choices, he said.

With the addition of Long John Silver’s and A&W;, Tricon expects to have 5,700 restaurants offering at least two brands within the next five years, he said. Tricon operates more than 30,000 restaurants worldwide.

Tricon also is looking to acquire smaller, emerging brands to extend the reach of its Pizza Hut brand, Novak said.

Coming off a strong fourth quarter, when earnings surged a better-than-expected 28%, the company also said it expects first-quarter operating profit to be at the “high end” of its previously announced estimates of 74 cents to 78 cents a share.

Tricon also expects the deal to boost its overseas expansion for Taco Bell, Novak said. A Taco Bell and Long John Silver’s union could be particularly fruitful in Latin America and Asia, where Tricon already has a strong presence, Novak said.

But Douglas Christopher, an analyst with Crowell, Weedon & Co. in Los Angeles, said Tricon’s acquisition and increased emphasis on multi-branding raises some concerns. “Running one restaurant business effectively is a huge challenge in itself, and now they have five of them,” he said.

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Reuters and Dow Jones contributed to this report.