Karcher passes reins to ex-KFC prexy Doyle

Nation's Restaurant News, Jan 11, 1993 by Richard Martin

ANAHEIM, Calif.--The Jan. 1 arrival here of a former Kentucky Fried Chicken president to lead the 640-unit Carl's Jr. chain marked an apparent end to burger mogul Carl N. Karcher's effort to repurchase the public's stake in the struggling fast-food concern he founded over 50 years ago.

"My sense in talking to Carl," said former KFC-USA president Donald E. Doyle, "is that he has the same interest as the board" of Carl Karcher Enterprises, whose non-management members last month recommended operational improvements and rebuffed chairman Karcher's move to take the company private.

Doyle was named CKE's president and chief executive officer just days after a special committee of the Anaheim company's board rejected a joint offer of $114 million, or $9.50 a share, made by Karcher's family trust and a Los Angeles investment firm. The firm, Freeman Spogli & Co., retained Doyle as an adviser last August on the recommendation of Karcher, who controls 34 percent of CKE's stock.

In addition to succeeding Karcher, who resigned as CEO but remained chairman, Doyle fills the post of president that had been vacant since the death last May of Karcher's younger brother, Donald.

A 16-year KFC veteran who presided over its domestic system from 1984 to 1988, Doyle saw that chain grow during his tenure to more than $950 million in annual revenues from 1,250 company outlets and 3,700 franchised units.

Doyle, who rose through the ranks of marketing and strategic planning at KFC, is credited with playing a key role in boosting that chain's domestic sales per restaurant from $280,000 in 1979 to $670,000 at the end of his presidency in 1988. In addition to a bachelor's degree in mathematics, he holds an M.B.A. degree with a specialization in finance.

Contacted at his home in Louisville, Ky., just days before his relocation to the Anaheim area, Doyle compared his stint at the helm of KFC with the task before him at CKE. "Fundamentally, the challenges and opportunities are quite the same," he said. "The challenges that are facing Carl's are ones that are facing everyone: how to meet the consumers' demands for value in an environment of increasing competition."

Doyle said he was picked to be CKE's president and chief executive following a recruitment campaign that Carl Karcher initiated shortly after Donald Karcher died of lung cancer eight months ago. Doyle said his appointment to head the company was delayed to avoid conflicts with the buy-back negotiations.

Analysts see the timing of Doyle's appointment as an effort to minimize erosion of CKE's stock price in light of disappointing financial results and the absence of counteroffers to the rejected Karcher-Freeman Spogli bid from such rumored potential suitors as Wendy's, Hardee's and PepsiCo.

In appointing Doyle when they did, CKE's directors "tried to stop the stock from a freefall," said Bill Davenport, a broker for Kidder Peabody in Newport Beach, Calif. He said the company's share price was at risk of falling because of the probable bail-out of short-term investors who were drawn to CKE by expectations that competing bids would boost the stock's value.

Moreover, CKE last month reported third-quarter earnings of $1.3 million, down from $1.9 million for the same period last year, on revenues of $112.8 million, a decline from $123.6 million in the year-ago period. Carl Karcher attributed the earnings drop to ongoing effects of the recession in Southern California, where most Carl's Jr. restaurants are located. The costs of closing CKE's food packing plant and switching to outside suppliers were also blamed.

Forty-week net income through Nov. 2 was $7.7 million, compared with $8.4 million at the same time last year. Nine-month revenues dropped to $389.1 million, from $417.8 million last year. Revenue declines were largely attributed to spin-offs of company-owned restaurants to franchisees.

A share of CKE, recently trading at around $8, has ranged in value over the past year from $6.75 to about $11.13. However, the price has fallen from $10 on Nov. 17, the day the Karcher-Freeman offer was formally disclosed, and again from about $9 on Dec. 18, when the bid was rejected by the board.

Analysts have suggested that CKE's stock should be worth at least $13 a share, based on the size of the Carl's Jr. chain as well as its prime locations, reputation for food quality and high share of its principal markets. Karcher took the company public in 1981 as a prelude to a national expansion thrust that later was aborted and redirected to four Western states. Despite its popularity with consumers and financial successes reported by franchisees, CKE itself has labored with inconsistent results as a public concern.

"You can't find any company that has done as poorly," asserted Kidder Peabody's Davenport, citing the decline in CKE's stock value since it traded at $14 a share in 1983, in contrast with the company's approximately doubled annual revenues over the same period.

In a statement announcing the rejection of Karcher's buy-back offer, CKE director Peter Churm, chairman of the board's special committee, said, "The committee has recognized the need for the company to aggressively address operational issues in order to achieve its full potential."