Food Fight: It's a Bidding War For Carl's Jr.-Hardee's

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Interested in snapping up the parent company to the Carl's Jr. and Hardee's fast food joints? You have until noon today to get your buyout offer in, and right now, the bid to beat is the $928 million offer that's currently on the table from private equity firm Thomas H. Lee Partners.

Turns out, somebody else is interested: That deadline was apparently enough to spur a new contender to offer up an alternative bid for CKE Restaurants (CKR), which operates the company-owned, licensed and franchised Carl's Jr. and Hardee's restaurants, the company announced this morning.

Unfortunately for investors, CKE Restaurants didn't disclose how much this new bidder was offering or the terms of the proposal -- or even who the bidder is. A Reuters report, however, cites Apollo Management as the mystery bidder. Ironically, Apollo on Wednesday abandoned its mega-billion buyout offer for Cedar Fair.

CKE and its suitor now have until April 27 to share information and move forward on striking a deal, or else decide to pull the plug. But even if this anonymous suitor's offer falls through, CKE still has its board-approved merger proposal with Thomas H. Lee to fall back on, which calls for a payout of $11.05 a share in cash.

As part of the Thomas H. Lee Partners merger proposal, CKE Restaurants had a 40-day window to shop around for a bigger and better buyout deal. As part of that effort, CKE's bankers contacted 28 potential buyers, but only four seemed interested enough to seek preliminary confidential information about the company as of March 19, according to the burger chain's preliminary proxy filing with the Securities and Exchange Commission.

So this alternative buyer maybe one of those four, meaning three more players could be counting down the minutes to make a mad dash to the table to bid for CKE. But who are these four potentially interested parties? CKE is keeping mum on their names too.

Minority Shareholders Give Lee Bid Two Thumbs Down


In sizing up the alternative bid, CKE Restaurants stated that it could be "reasonably expected to lead to a "Superior Proposal." This new takeover proposal, however, will be subject to a lot of tire-kicking over the next three weeks as CKE does its due diligence, the parties craft a mutually agreeable merger document, and the bidder shows proof of committed financing.

On the plus side, this latest development may aid CKE's efforts to appease its disgruntled shareholders, one of which ranks among its top 10 institutional investors.

On Tuesday night, Porter Orlin, a New York-based hedge fund that holds a 4.1% stake in CKE, announced that it had fired off a letter to CKE Chairman Byron Allumbaugh and CEO Andrew Puzder.

"We are writing to express our extreme dissatisfaction and puzzlement with the Board's decision to take the company private through a transaction with Thomas Lee Partners at the announced price of $11.05 per share," wrote Paul Orlin and Alex Porter on behalf of the firm that bears their names. "That price substantially undervalues the business. Moreover, selling the company at this time, under present market conditions virtually ensures that shareholders will not realize the true value of their investment. This deal strikes us as an opportunistic action by Management to to take the company from shareholders at the cheapest price possible."

In its letter to CKE's board and management, Porter Orlin calls on other shareholders to reject the deal unless they "receive fair value."

A Bad Time to Sell, And A Bad Price To Sell At


Porter Orlin is not shy about launching shareholder campaigns aimed to sway investors to reject buyout deals. In 2005, the hedge fund teamed up with Millenco to launch a "vote no" campaign against Shire Pharmaceuticals Group's proposed buyout of Transkaryotic Therapies. Shire was offering $37 a share, but the investor group was shooting for a bid in the $45 to $55 range. In the end, Porter Orlin lost that campaign, according to FactSet SharkRepellent.

Shareholder lawsuits have also been filed against CKE since it announced its buyout agreement with Lee Partners. And analysts have weighed in to pan the deal.

Keith Siegner, a Credit Suisse analyst, believes Carl and company would be better off going it alone.

"We still believe that shareholders would ultimately realize more value from voting against the buyout and retaining exposure to the upside," Siegner said in a research note published in late March.

Even before the Lee Partners deal was announced, Siegner expected CKE's share price to reach $12 within the next 12 months. CKE's stock had closed at $8.91, prior to the buyout announcement.

Neither CKE's chief executive Puzder nor Lee Partners returned phone calls seeking comment.

CKE Restaurants is facing the same touch economic climate as everyone else: Its fourth quarter revenues were down 4.8% to $311.7 million, compared to the same time a year ago. And combined sales at Carl's Jr. and Hardee's restaurants that have been opened at least a year dropped 6% in the fourth quarter. But it didn't lose ground against its competitors.

"Even though we saw weakness in the overall economy, high unemployment rates and deep-discount burger wars, I'm proud to say that for the year we maintained market share," Puzder said in a statement when announcing CKE's fourth quarter results.

CKE's CEO Can Handle the Heat


If anyone has the experience to deal with contentious situations involving Carl's Jr., it's CEO Andrew Puzder.

Back in the early 1990s, when he was serving as general counsel for Fidelity National Financial, he was a foot solider alongside title-insurance chief William Foley II -- the white knight to the late Carl Karcher, founder of Carl's Jr.

Foley came to Karcher's defense following the founder's ouster as board chairman over allegations that he was working at odds with the company. The board objected to his efforts to establish a dual-restaurant concept that would have housed Green Burrito and Carl's Jr. franchises under one roof, a move that would have resulted in personal financial gain for Karcher. Foley, as part of an investor group that took a controlling interest in Carl Karcher Enterprises, bought a slug of CKE stock from Karcher, helping him stabilize his finances. Foley and Puzder then helped rein in Karcher, who had threatened to launch a proxy fight against the board that ousted him from his chairmanship.

Foley later played a role in getting Karcher reinstated to the board in the lofty position of chairman emeritus. Foley later became CEO of the burger chain himself, with Puzder following close behind after a stint as general counsel.

It's been nearly two decades since Puzder was part of a public brawl over Carl's Jr. -- he may want to beef up with some burgers in case he has to rumble with some of its shareholders.
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