Magic Brands LLC, parent of the Fuddruckers and Koo Koo Roo brands, said on Wednesday it had agreed to sell substantially all of its assets to Tavistock Group in a $40 million deal that included filing for Chapter 11 bankruptcy protection.
Magic Brands, which filed the Ch. 11 petition in U.S. Bankruptcy Court in Delaware, said it would close 24 of its 85 corporate Fuddruckers units by the end of the month, and evaluate the 13 Koo Koo Roo units, which are based in California. The company said none of its 135 franchised Fuddruckers units are included in the bankruptcy filing.
Dwayne Chambers, senior vice president of branding and marketing for Fuddruckers, said that with this deal “we’ve got the right owners and the right financing and backing, the right management team and the right strategy and the right staff.”
Tavistock Group, through Tavistock Restaurants LLC, owns several fast-casual and casual-dining brands, including the 32-unit Freebirds World Burrito chain, and such other concepts as ZED451, Cafe del Rey, Napa Valley Grille, Blackhawk Grille and California Café. Last December, Tavistock acquired the single-unit Sapporo Restaurant in Scottsdale, Ariz., for $1.7 million.
As part of seeking bankruptcy court approval for its sale, Magic Brands said it will file a motion for other qualified bidders to submit offers. The company said it expects its deal with Tavistock to close within 60 to 90 days.
Wells Fargo Capital Finance Inc., Magic Brand’s existing senior lender, has committed to provide $14 million of debtor-in-possession financing for the sale and restructuring.
Peter Large, chief executive of Magic Brands, said in a statement: “This transaction with Tavistock Group allows Fuddruckers to restructure our finances to provide the highest degree of flexibility to fund our remodel and expansion program.
Large added that “by shedding burdensome leases under the protection of Chapter 11, Fuddruckers will regain the financial stability and flexibility it needs to pursue strategic growth initiatives.”
Magic Brands said it had closed or was closing restaurants in 10 states and the District of Columbia. It is pulling out of the Denver market entirely, and other states where it was shuttering restaurants include Arizona, California, Colorado, Georgia, Illinois, Maryland, Missouri, North Carolina, Texas and Virginia.
For a complete list of Fuddruckers closures and other information about the restructuring, Magic Brands as set up the www.fuddruckersrestructures.com website.
If the transaction is completed, Tavistock would become a franchisor for the first time with the Fuddruckers brand.
Jeff Carl, chief marketing officer for Tavistock Restaurants, said the company has been interested in building its fast-casual offerings following the successful acquisition of the Freebirds burrito concept in 2007, the company’s first foray into quick-casual. At the time, that chain had 19 units, but Tavistock has been growing the brand rapidly, pledging to have 52 locations open by the end of 2010, all of which are company owned.
Carl said Tavistock has been “looking at hamburgers for a while, as that sub-segment has shown incredible strength.”
Though Fuddruckers is seen by some as the first “better burger” fast-casual brand, that niche has become the fastest-growing foodservice category in recent years. Larger competitors include the rapidly growing Five Guys Burgers and Fries and Smashburger brands.
Quick-service giants such as McDonald's and Burger King have also introduced more premium burgers, and casual-dining competitors are tapping into the burger frenzy. The Cheesecake Factory this week launched a new line of upscale “Glamburgers,” for example.
Carl said Tavistock was attracted to Fuddruckers in part because their research found “strong consumer equity in the brand.”
“With the potential synergies we have with Freebirds and the experience we have with upscale dining ... We believe we can take this brand further,” Carl said.
He declined to comment on Tavistock’s potential plans for Koo Koo Roo.
Lisa Jennings contributed to this story.