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A Chicago deep-dish bankruptcy battle

Chicago-based deep-dish pizza chain Gino’s East could be planning to buy the assets of competitor Giordano’s Pizza, as that chain operates under Chapter 11 bankruptcy protection, according to published reports and sources close to the dealings.

Gino’s East parent company Bravo Restaurants Inc. could be among the bidders interested in assets of Giordano’s Enterprises LLC, which filed for bankruptcy in February, the Chicago Tribune has reported. The two chains have competed for market share since the early 1970s.

All of Giordano’s Enterprises assets are for sale, according to Philip Martino, a bankruptcy attorney with Quarles & Brady LLP and the company’s trustee while it operates under Chapter 11. Those assets include five company-owned locations, five joint-venture locations, rights to operate the corporate restaurants, franchise agreements for 40 locations, and Giordano’s intellectual property. Giordano’s owns 20 real estate parcels associated with some of its corporate and franchised stores, Martino added.

Bravo Restaurants did not return a phone call seeking comment.

To convert or not?

Martino did not identify any potential bidders, and because no offers have been submitted in bankruptcy court, industry observers could only speculate about what an acquisition of some or all of Giordano’s business would mean for Gino’s East. Suitors could either buy individual locations and convert them to other restaurants, or acquire all of Giordano’s intellectual property and become the new franchisor to several dozen locations.

Both cases have their merits, consultants said.

“My suspicion is that [Gino’s East] would retain the Giordano’s name and not convert locations to Gino’s East,” said Bob Goldin, executive vice president of Chicago-based market research firm Technomic Inc. “They’re unique properties, and having multiple Gino’s Easts may not be the best strategy … There’s value in scarcity. I’m not saying no to a unit here and a unit there, but the problem with the Giordano’s units hasn’t been the traffic.”

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Dennis Lombardi, executive vice president of Columbus, Ohio-based WD Partners, said Gino’s East or any buyer likely would seriously consider buying all intellectual property. He added that the case to convert some locations in a blended approach could make sense.

“Some of those [Giordano’s] stores aren’t far apart from [Gino’s East],” Lombardi said. “What’s conceivable is, if I’m Gino’s and I covet one of Giordano’s locations, I could close mine and move it to that better location. It’s an interesting way to expand the brand with real estate.”

Gino’s East has three Chicago locations, plus seven suburban units, a location in Wisconsin and two units in Northwest Indiana. Eleven of Giordano’s 47 units are in Chicago, with several more in the city’s suburbs and five locations in Florida.

Even in a market with other deep-dish purveyors, like Lou Malnati’s and venerated independents Pizzeria Uno and Pizzeria Due, traffic wasn’t a problem for Giordano’s, the former owner has said.

John Apostolou, who had owned the chain with his wife since 1988, said at the time of the Feb. 16 bankruptcy filing that the severe real estate downturn, not problems with pizza sales, caused Giordano’s Enterprises LLC to default on its loans to lender Fifth Third Bank and seek Chapter 11 protection. The family’s Randolph Partners LLC real estate holding company was not able to sell or lease properties in Florida and Illinois, whose value dropped precipitously. The Apostolous filed for bankruptcy protection for all of their holdings simultaneously, including Giordano’s.

“Giordano’s is a fundamentally sound concept, and I could see why Gino’s would be interested,” Technomic’s Goldin said. “In this environment, you have to look at opportunities to pick up assets cheap. One company’s distress is another’s opportunity.”

A curious case

At the time of the filing, the Apostolou family owed Fifth Third $45.5 million. The bank provided another loan to Giordano’s to pay employees and vendors while operating in bankruptcy, but required that the business reorganize, including a possible sale of the company.

From there, the case of Giordano’s bankruptcy became increasingly complex. On April 22, Apostolou and his wife filed several documents with the court. In one affidavit, Apostolou and his wife declared themselves “American Freemen, free inhabitants of the Illinois state, and we find it impossible to obtain State declared Legal Tender at Law.”

In early May, Apostolou fired his bankruptcy attorneys from Chicago firm Arnstein & Lehr LLP. The U.S. trustee assigned to bankruptcy court in Chicago asked the presiding judge to appoint a private trustee for Giordano’s Enterprises, to which the judge assented the next day.

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Apostolou filed more documents with the court May 11, seeking to terminate the bankruptcy. One brief said “all contracts” with the bankruptcy court were “cancelled for lack of valuable consideration,” citing “bank fraud, securities fraud and tax fraud by the United States.” Apostolou also re-filed a copy of the “American Freemen” document.

Martino was appointed trustee May 12. In an interview, he told Nation’s Restaurant News that “there were certain problems from day one with John Apostolou,” and the trustee obtained a court order barring Apostolou from Giordano’s headquarters at the Rush Street flagship and all other debtor properties.

“After the rocky start, John Apostolou has cooperated with me and respected my role as trustee,” Martino said. “Indeed, two of his sons are franchisees and one nephew is a joint-venture partner in two Florida locations. None of them have caused any problems in the case.”

An affiliate of the Apostolous, Marshall Home of Tucson, Ariz., has intervened in the case, filing papers in early June with the bankruptcy court claiming that he has a $150 million lien against Giordano’s Enterprises. Martino characterized the claim as fraudulent in court, and asked the judge on June 8 to sanction Home.

Giordano’s was founded in 1974 by brothers Efren and Joseph Boglio, who sold the chain to the Apostolous in 1988. According to its website, the chain has 47 restaurants in Illinois and Florida.

Contact Mark Brandau at [email protected].
Follow him on Twitter: @Mark_from_NRN

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