Anticipated Deal Would Let Carl’s Jr. Span Nation

ANAHEIM —  The owner of Carl’s Jr. restaurants, bidding to become one of the nation’s largest hamburger-chain operators, has agreed to acquire the 3,100-outlet Hardee’s fast-food chain, sources said Sunday.

The $325-million deal, which sources said will be announced this morning before the stock market opens, would dramatically expand the operations of Carl’s Jr. parent CKE Restaurants Inc. beyond its Southern California base, giving it an immediate presence east of the Mississippi River.

Hardee’s, which has outlets in 41 states as well as about 10 foreign countries, is the fourth-largest burger chain in the country, behind McDonald’s, Burger King and Wendy’s.

The deal caps months of speculation among restaurant industry observers that CKE would buy Hardee’s and use the North Carolina-based chain as a springboard to a national role for Carl’s Jr., a 675-unit chain that has long struggled to break out of its Southern California stronghold.

Hardee’s outlets would continue to operate under their own name, sources said, but CKE gradually will add the Carl’s Jr. name to the outlets and will feature the most successful parts of each chain’s offerings on menu boards.

The Hardee’s acquisition is the most ambitious of a series of deals CKE Chairman William P. Foley II has orchestrated since taking control of Anaheim-based CKE late in 1993 as he attempts to put the 56-year-old company on the national map through an aggressive acquisition program.

He is also trying to transform its staid image with a series of hip, in-your-face ads--featuring basketball star Dennis Rodman, rock musicians, ghoulish humor and the like--pitching bigger, juicier burgers to its most prized target, 18- to 35-year-old males.

The rapid-fire moves by Foley, who made his fortune in title insurance and had no previous fast-food experience, have reinvigorated a company whose ads previously had featured grandfatherly founder Carl N. Karcher, who ventured into the business in 1941 when he set up a hot dog cart in Los Angeles.

Karcher long ago gained a reputation as an innovative entrepreneur, opening one of the industry’s first drive-through windows and offering a salad bar. He also launched an out-of-state expansion effort in the 1980s, opening a handful of restaurants in Texas and Arizona. But they soon closed because of an economic downturn and stiff competition in those states.

In the early 1990s, Karcher was forced out as chairman during a bitter boardroom struggle over the chain’s strategic direction. In late 1993, Foley came on board. Karcher, now 80, holds the title of CKE chairman emeritus.

Under Foley’s leadership, Carl’s Jr. abandoned an ill-fated low-cost menu designed to compete with bigger chains, launched the new ad campaign, and started patching together deals designed to extend the company’s reach.

It has been a profitable strategy so far for the company as well as investors. CKE’s earnings last year more than doubled to a record $22.3 million, while revenue climbed more than 36% to nearly $537 million. The stock surged 80% during the year as well.

But the Hardee’s deal isn’t without risk. Hardee’s, based in Rocky Mount, N.C., has been struggling. Its parent, Montreal-based Imasco Ltd., recently reported that the chain had an operating loss of $11 million during the first quarter.

The chain, which includes about 800 company-owned and 2,300 franchise-operated restaurants, generates more than $3 billion in annual revenue. But sales at Hardee’s have been stalled for several quarters. By contrast, same-store sales at Carl’s rose by 10.7% during the year.

Executives at Imasco, which also has tobacco, retail and drug companies, weren’t available for comment Sunday, and CKE declined to comment on its plans.

But sources said CKE hopes to broaden Hardee’s appeal to diners by replacing the chain’s lunch and dinner menu with charbroiled fare from Carl’s Jr. CKE will retain Hardee’s popular breakfast menu, which drives nearly a third of the chain’s overall sales.

Earlier, CKE acquired a controlling stake in Checkers Drive-In Restaurants, a Clearwater, Fla.-based chain with 475 restaurants in Southeastern states.

Checkers recently agreed to pay $180 million for Louisville, Ky.-based Rally’s hamburgers Inc., a double drive-through competitor with 481 restaurants in 19 states. In a related deal, CKE has agreed to operate more than a dozen Rally’s restaurants in Southern California.

CKE also paid $42 million for a majority stake in the Casa Bonita Mexican-style restaurant chain with 107 units in Texas.

In each case, restaurant industry analysts said, CKE paid relatively low prices for chains that either were losing money or lacked capital needed to grow.

During an interview earlier this year, Foley hinted that other deals were in the works: “There are a lot of broken chains out there that need fixing.”

Sources said CKE and Imasco hope to conclude the Hardee’s deal by the end of September. Some jobs are likely to be eliminated at Hardee’s headquarters in North Carolina, but it was uncertain how many, or whether the deal would create more jobs at CKE’s headquarters in Anaheim.

CKE is expected to use an existing line of credit and sell additional company stock to finance the deal.

CKE closed Friday at $20.625, up $1.375, while Imasco slipped 12.5 cents to $13.375. Both stocks are traded on the New York Stock Exchange.

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Top 10 Burger Chains

CKE Restaurants Inc., which owns the Carl’s Jr. chain, would become the nation’s fourth-largest hamburger chain operator with the acquisition of the Hardee’s chain, based in North Carolina.

National ranking based on systemwide sales for the latest fiscal years, in millions:

McDonald’s: $29,914

Burger King: $8,400

Wendy’s: $4,500

Hardee’s: $3,360

Jack-In-The-Box: $1,123

Sonic Drive-Ins: $881

Carl’s Jr.: $575

Whataburger: $500

* Checker’s Drive-In Restaurants: $374

* Rally’s Hamburgers $355

* CKE also has acquired a controlling stake in Checker’s Drive-In Restaurants, which recently announced plans to acquire Rally’s Hamburgers.

Source: Times reports, Technomic Inc.