Rieses buy stake in H&H: attracted to NY real-estate holdings

Nation's Restaurant News, Nov 21, 1988 by Rajan Chaudhry

Rieses buy stake in H&H

NEW YORK -- Restaurant and real-estate barons Murray and Irving Riese have moved to tighten their grip on the Big Apple by quietly accumulating a 7-percent stake in the beleaguered Horn & Hardart Co.

The Rieses -- who operate more than 350 restaurants -- along with two partners, bought 1 million shares of stock of Horn & Hardart, a Las Vegas, Nev.-based restaurant and mail-order concern with considerable holdings here. The cost, including commissions, exceeding $8.5 million. The group spread its purchases over a five-month period so that they would not drive up stock prices, Murray Riese said.

In a statement filed with the Securities and Exchange Commission, the group, Automatic Partners, said that, depending on management's progress in enhancing shareholder value, it may seek control of Horn & Hardart and would consider soliciting proxies to elect its nominees to Horn & Hardart's board of directors.

"What we have here is real-estate and restaurant development," Riese said: "Our interest is obvious. Whether or not we get control of this company, we think that this is a fantastic investment."

Despite the Rieses' stake, Horn & Hardart, which in September replaced longtime chairman Barry W. Florescue with vice chairman Donald Schupak, has no intention of departing from its current plan, said Michael P. Sherman, senior vice president.

The company's strategy includes improving the marketing operation of its Hanover Cos. mail-order division, looking for a West Coast cafeteria chain acquisition to complement its International King's Table restaurants, closing unprofitable stores, and reviewing its real-estate holdings.

Horn & Hardart is also trying to close the $20 million sale of its Bojangles' chain to Greenville, S.C.-based Carabo Inc., its largest franchisee. Despite delays, both sides say the deal should close within 30 days.

In addition to International King's Table, Horn & Hardart owns New York's Automat and Dine-O-Mats and operates Arby's, Tony Roma's, and Burger King franchises.

Horn & Hardart said it expects a third-quarter loss of $32 million, mainly from the writedowns related to its sale of Bojangles' and the closing of New York restaurants.

The company also expects an unspecified loss for all of 1988 but has said it anticipates a return to profitability in 1989.

"I don't think [Horn & Hardart] has an established direction yet," Riese said. "I think that the only thing that it's done at this moment is replaced Mr. Florescue, and I think that it's contemplating changes, but it's not calling me up to ask me about my opinion about what it wants to do. I'm not sitting on its board of directors, and it hasn't invited me to."

But Riese, whose interest in Horn & Hardart dates back beyond his first attempt to buythe company more than 20 years ago, seems to know what he'd do if he were sitting on the company's board.

"In New York City the real estate that it has is mostly, if not all, underdeveloped. And I'm told that there are tremendous possibilities in Florida, with some of the assets that it owns down there, that have never really been developed.

"Further, we now are developing multi-restaurant food courts, if I can call them that, and so we could be helpful if somebody asked us to put more than one type of restaurant on a site to defray some of the costs of rent or just to add potential profits to all of these things.

"Does that mean that it's the Rieses who have to develop it? Of course not. I don't mind owning stock in a company that somebody else will develop if I can't, and I'm not insisting or asking to be nominated for it."

The recent change of command at Horn & Hardart, Riese said, might also be an opportunity to end the long-running feud between Horn & Hardart and Pillsbury over Burger King franchises.

"It's no secret that Florescue, when he was at Horn & Hardart, and Jeff Campbell, when he was with Pillsbury, were not exactly friends, and to this day the companies are still in court with lawsuits," Riese said. "Well, OK, Campbell isn't there anymore, any Florescue isn't there anymore, and Charles Olcott at Burger King isn't there anymore, so all of the enemies who were fighting each other are not there anymore. Maybe now somebody can develop the potential of the Burger Kings again in New York -- with this great real estate or without it."

The Rieses are principals in National Restaurants Management Inc., New York City's largest restaurant operator and franchisee of 25 national chains,including Roy Rogers, Kentucky Fried Chicken, Pizza Hut, and Donkun' Donuts.

The company recently signed a deal to purchase 56 Houlihan's, 11 Darryl's, and 40 other restaurants from Irvine, Calif.-based Restaurant Enterprises Group Inc.

In addition to the Rieses, Automatic Partners includes Arthur G. Cohen, a New York real-estate developer and investor, and Attilio F. Petrocelli, chairman of both Delaware-based Metropolitan Consolidated Industries Inc., a real-estate investment and management firm, and Metex Corp., which is engaged in the manufacture and sale of antenna systems, knitted wire products, and transformers for heavy-duty motor controls. Metropolitan is the sole shareholder of Metromatic, and Petrocelli owns 50 percent of the outstanding common stock of Delaware-based United Capital Corp., the entity that controls Metropolitan.