ATLANTA Cajun Operating Co., franchisor of the Church’s Chicken quick-service chain, has agreed to purchase 20 Church’s restaurants in Louisiana from beleaguered Baton Rouge, La.-based Wetco Restaurant Group LLC for $10.9 million.
The deal allows Wetco to be restructured as part of a consensual Chapter 11 bankruptcy. The units are located in the Louisiana markets of New Orleans, Baton Rouge, Lafayette, and Alexandria, according to management of the 1,600-unit chain.
Wetco — which owns 30 Church's restaurants in Louisiana and Tennessee, only 22 of which are still in operation — purchased the restaurants from AFC Enterprises in 2002. The company has been struggling since Hurricane Katrina devastated coastal Louisiana in 2005.
Wetco filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Western District of Louisiana in Opelousas on Sept. 28. GE Capital is the senior creditor, while Cajun is identified as a major creditor. Other creditors identified in news reports include AFC, the parent of the rival Popeyes Chicken & Biscuits chain and the former owner of the Church’s brand.
According to its bankruptcy petition, Wetco owes GE Capital $3.2 million for its secured claims and $4 million for its unsecured claims. Wetco’s restaurants generate about $14 million in annual revenue, according to court papers. The company listed $3.8 million in assets and $15.3 million in liabilities.
Bill Tucker, founder and chief executive of Wetco, said that after two years of unsuccessfully toiling with a disaster recovery plan involving governmental resources, the company had reached a point where the only way to save the business was to inject millions of dollars of additional private capital.
“Wetco was just not in a position to make this investment,” he said in a statement. “I came to the realization that the best thing I could do for these communities and my employees was to sell the business and let Cajun restructure this business, given their resources and opportunity to compete more effectively."
Published reports indicate that under the terms of the deal, Cajun will provide $5.5 million of the acquisition price in cash and would bid the remaining $5 million on credit.
The transaction, as is typical in a bankruptcy sale, requires that a sales hearing be held. In the instance of Cajun deal, the hearing must be held no later than Nov. 20, with a final approval given by the next day.
If another bidder should come forward and seek to buy WETCO’s assets at a higher price, the deal specifies that Cajun would receive a breakup fee of 4 percent of the total paid for the assets, or at lest $423,000. It would be reimbursed for expenses of up to $400,000.
Church's Chicken owns and franchises namesake locations in 18 countries, with system sales exceeding $1 billion. Cajun Operating is owned by Arcapita, a private-equity firm that also owns the Caribou Coffee restaurant brand.