Article

Luby's to purchase Fuddruckers for $63 million

Luby's will assume some of Fuddruckers' obligations, real-estate leases and contracts. It also will pay $2.45 million more in cash if it doesn't assume some contracts.

June 19, 2010 by Valerie Killifer — senior editor, NetWorld Alliance

Cafeteria chain Luby's Inc. has won the bidding war to purchase most of the assets of Fuddruckers Inc., its parent Magic Brands LLC, and their affiliates for $63.45 million in cash.

Luby's bought the assets Thursday during a bankruptcy auction.

In a story in theWall Street Journal, the Houston-based cafeteria chain will assume some of Fuddruckers' obligations, real estate leases and contracts. It also will pay $2.45 million more in cash if it doesn't assume some contracts.

"After Thursday's 11-hour auction process, Luby's proved to be the highest and best bidder with a final bid valued at $63.45 million," said Magic Brands CEO Peter Large. "Based on current estimates and assumptions, creditor recoveries are anticipated to be substantial and could reach as high as 100 percent. This is an outstanding result for our creditors."

The results of the auction will be presented for approval by the United States Bankruptcy Court in the District of Delaware in Wilmington on June 22, 2010. The transaction is expected to close on or before July 9, subject to satisfaction or waiver of other customary closing conditions.

"Luby's has the capacity to support and grow the Fuddruckers brand, which we believe will be to the benefit of both our corporate restaurants and franchisees," Large said.

Magic brandsannounced in Aprila tentative $40 million deal with Tavistock Group for the acquisition of approximately 62 Fuddruckers locations and its Koo Koo Roo concept. Tavistock is the same private-equity firm thatpurchased FREEBIRDS World Burritoin 2007.

According to that agreement, none of the 135 franchised locations were named as part of the filing.

The Magic Brands bankruptcy petition was approved in April by the District of Delaware in Wilmington, and listed assets of $1 million to $10 million and debts of $10 million to $50 million.

Tavistock was active in Thursday's 11-hour bid process, said its chief marketing officer Jeff Carl. And as other parties dropped out, the final two bidders were Tavistock and Ludy's.

Fuddruckers operates 60 restaurants and three Koo Koo Roo locations, while franchisees operate 138 more Fuddruckers locations.

While the deal could mean salvation for Fuddruckers creditors,comments in the Houston Chronicleask whether Luby's will be able to maintain the same level of food quality that made Fuddruckers one of the top five fast casual burger chains.

Luby's operates 96 restaurants in Austin, Dallas, Houston, San Antonio, the Rio Grande Valley and other locations throughout Texas and other states.

In the company's third quarter ended May 5, 2010, Luby's reported $53.9 million in restaurant sales, a decline of $3.5 million compared to the same period last year. Same-store sales also dipped 4.8 percent, a large improvement of same-store sales declines of 13.3 percent and 12.5 percent, reported in the company's first and second 2010 quarters, respectively.

For the first three quarters of 2010, same-store sales dropped 10.2 percent. Meanwhile, total sales declined 10.9 percent to $162.9 million.Loss from continuing operations for the first three quarters of fiscal 2010 was $1.5 million, compared to a loss of $0.6 million in fiscal 2009.

In addition to its cafeteria-style restaurants,Luby's Culinary Contract Services provides food servicemanagement to 17 sites consisting of healthcare, higher education and corporate dining locations.