Cara enters ring in Dunkin' fight: contract feeder backs Mann

Nation's Restaurant News, June 26, 1989 by Peter Romeo

Cara enters ring in Dunkin' fight

RANDOLPH, Mass. -- Toronto businessman George Mann is pressing his pursuit of Dunkin' Donuts by teaming up with Cara Operations, a Canadian food-service power, to tender a sweetened purchase offer of $43 per share.

Cara, a contract feeder and airport concessionaire, will operate Dunkin's 1,455-unit doughnut chain if the $278 million cash bid is accepted, according to a spokesman for Mann's Kingsbridge Capital investment unit. Dunkin's nine franchised Chili's restaurants would be sold, the spokesman told Dow Jones New Service.

The enlistment of an experienced food-service operator could temper Dunkin's franchisees' opposition to an acquisition. The licensees' National Advisory Council, professing steadfast loyalty to Dunkin's seasoned management, has pledged to support the company in a takeover fight. Some of the operators have reportedly been buying Dunkin' shares to put more voting power in friendly hands.

"It's a very risky bid because the takeover of any restaurant organization, especially one as heavily franchised as Dunkin', needs the consent of franchisees," remarked Roger Lipton, the restaurant stock analyst for Ladenburg, Thalmann in New York.

Previously, Kingsbridge had invited Dunkin's management to enter into a "business combination," which would have netted stockholders $42 per share, or about $272 million in total.

The doughnut maker, which is based here, spurned the offer and adopted a number of takeover deterrents, including an Employee Stock Ownership Plan. In addition, it sold a block of preferred stock to General Electric Capital Corp., a lending institution that agreed not to sell its 10-percent stake without Dunkin's consent. Proceeds are being used to buy back Dunkin' common shares.

Dunkin' indicated that the maneuvers would leave about 40 percent of the company's stock in the hands of management and its allies.

Kingsbridge told the investment community that it would ask a Delaware court to rescind Dunkin's ESOP and preferred-stock placement. The investment company will argue that the actions were "not responsible," the spokesman told Dow Jones. He also accused Dunkin' of paying General Electric a $1 million fee to buy shares.

The offer tendered by Kingsbridge and Cara is contingent on 75 percent of Dunkin's stock being tendered. At the time of the bid, Dunkin' shares were trading for about $39.

Dunkin' has not yet responded to the offer and has declined to comment about its plans or Kingsbridge's allegations. The chain had earlier expressed an intent to remain independent.

Kingsbridge already holds about 12 percent of Dunkin's shares outstanding. The company began amassing the stake when issues were trading for about $31.

"Their offer is more than fair," Lipton said of the $43-per-share bid. "They're over-paying if you look at just the short and intermediate terms."

But, he added, "it's not that much of a premium above what the stock is trading at right now. Management is still in a position to put up a pretty good fight. It would be different if the stock was still at $30."

Kingsbridge's spokesman said that the enlistment of Cara has enchanced the chances that Dunkin' would be taken over.

"Cara is one of the best franchise owners on the continent," he told Dow Jones. "They know the food business, and they're good operators." He did not return telephone queries for additional details of the partnership.

The Toronto-based contract feeder and restaurant operator employs nearly 20,000 people and generated revenues of $613.3 million last year.

Dunkin' recently pared its staff by 14 percent, to about 575 people, and posted revenues of $112.8 million for the year ended Oct. 31.

Kingsbridge is controlled by Unicorp Canadian Corp., a holding company run by Mann. Through a variety of holding companies, he controls such U.S. concerns as New York-based Lincoln Savings Bank and such Canadian operations as Union Gas, a major utility.