Roasters Franchisees Eye Purchase Of Bankrupt Company

By Mark Hamstra, Staff writer

Nation's Restuarant News, The Newsweekly of the Foodservice Industry, Vol. 32, No. 20, May 18, 1998 

Fort Lauderdale, Fla.- A group of determined Kenny Rogers Roasters operators are hoping to heal the crippled concept by preparing to acquire the chain's parent company themselves if a more suitable candidate does not emerge to buy if from bankruptcy.

The committee representing franchisees in the Chapter 11 case of Roasters Corp., based here, has drafted a joint plan of reorganization that would result in a group of domestic operators owning a majority interest in the company, while the current majority owner, Berjaya Group Berhad, based in Kuala Lumpur, Malaysia, would retain a minority stake.

According to the committee's chairman, the franchisees have secured the support of Kenny Rogers, the country western signer and actor who has served as a pitchman in commercialize for the chain and maintains a small minority interest.

"The value of the company lies in the franchisee community and in Kenny Rogers personally - he's on the franchisees' side," said Frank Monteleone, chairman of the committee, which was sanctioned as the official representative of franchisees at an April 24 bankruptcy hearing in Durham, N.C., where Roasters filed for bankruptcy protection in March.  He said the entertainer has been in contact with the franchisee committee and has expressed his desire to back franchisees' efforts to preserve the concept.

Representatives for Rogers could not be reached for comment.

Monteleone, who operates three Roasters restaurants in southern California through his Woodland Hills, Calif.-based Monteleone Cos., did not say what financial interest, if any, Rogers might have in a reorganized company.

Some 45 franchisees currently operate about 80 domestic units of the quick service concept, which specializes in wood-roasted chicken and homestyle side dishes.  Roasters also has a 50-percent interest in a joint-venture company operating another eight units in the Baltimore area but otherwise has no corporate operations.  Several other licensees have about 66 units outside the United States, and Berjaya is the majority shareholder in a large overseas master license, Roasters Asian Pacific.

Roasters had more than 300 outlets about three years ago, but had overextended its corporate operations and succumbed to intense competition and high lease obligations.

Monteleone estimated that it would require an investment of $7 million to $10 million to get approval for the joint-reorganization package.  He said the committee, made-up of six franchisees, hoped to submit the proposal to the bankruptcy court within the next few months as a joint plan in partnership with Roasters, Corp.

An attorney with the law firm representing the committee noted that although the operators had the basics of a sound proposal, it still needed considerable refinement.

"Having a strong franchisor servicing the needs of the franchisee community is of paramount importance," said David Levene of Levene, Neale, Bender and Rankin, Los Angeles.  At this point we are not really wedded to any particular person or group.  There are a variety of ways this can be accomplished - we would just like to see this move along very rapidly.  It does not do anybody any good for this to be in limbo."

Martin Bernholz, chief executive of Roasters Corp., echoed Levene's sentiments.

"Definitely, by the end of the year, we hope to be out of this--early, we hope to do it as quickly as possible---our goal is to do it within 90 days," he said.

Bernholz said that Berjaya - a diversified conglomerate with holdings in a variety of industries - is "very interested in the outcome" of the bankruptcy proceedings, but he added, "In bankruptcy, usually whoever is willing to come to the table with the most money is the one who gets control of the company."

Monteleone said he had the impression that neither Berjaya nor the creditors had expressed any immediate interest in taking over the company.

The primary unsecured creditors in the Roasters bankruptcy are about a dozen former franchisees who had filed lawsuits against Roasters Corp.  They are seeking a total of about $30 million, according to Robert Zarco of Zarco & Pardo, the Miami-based firm representing the litigious franchisees.

Roasters owes another $3 million to $4 million in unsecured debt and has about $1 million in priority debt, Monteleone said Berjaya also has a $12 million secured claim with Roasters Corp., he said.

Zarco said the franchisee lawsuits, which accuse Roasters Corp., of such infractions as misrepresenting the company's management expertise and misstating the costs of operating a restaurant, also name John Y. Brown, the chain's founder, who was a longtime president of rival KFC.  He said he felt that it was likely that the lawsuits would be settled without going to trial.

The lawsuits would not present an obstacle in any reorganization plan, Levene said.

Monteleone has had discussions with some lenders, and he said he feels that securing the financing to make the acquisition "is not an issue."  Another option, he said, would be for operators to pool their resources to attempt to acquire the company through a direct equity investment.

"It's sort of in the 'dating' stage, where we're just trying to get to know each other a little bit,' he said.

The committee would like nothing more than for a deep-pocketed suitor to emerge, according to Monteleone.

"IF [billionaire investor] Warren Buffet comes along and says he'd like to buy this to go along with his Dairy Queen acquisition, we'd say, 'More power to him.'" He said.

Meanwhile the six-member franchisee committee has been working feverishly to keep the concept alive.

Emil Teri, who is president of the Kenny Rogers Roasters Franchise Association and is a member of the committee, said various operators have taken responsibility for marketing procurement and other functions.

"We are not getting paid, but we are spending a lot of time on this," he said, noting that all six members of the committee have extensive experience both in the restaurant industry and in other businesses.

"We have millions and millions of dollars invested in our businesses," Monteleone said.  "We want to protect our own interests."