Interstate United, Canteen to merge under Transworld; will become nation's 3rd-largest contract feeder

Nation's Restaurant News, August 12, 1985 by Alan Liddle

Interstate United, Canteen to merge under Transworld

Will become nation's 3rd-largest contract feeder

Transworld Corp. has agreed to purchase contract feeder Interstate United Corp. from Hanson Trust PLC of London for $92.5 million in cash.

Transworld said it would merge Interstate into its Canteen Corp. contract food-service subsidiary upon completion of the purchase in September or October.

The addition of Interstate, which reported revenues of $395 million for fiscal 1984, is expected to make Canteen the nation's third-largest contract feeder, with an estimated 2,500 manual accounts, thousands of vending machines and projected annual systemwide sales of $1.5 billion.

Transworld said it was too early to say whether the headquarters of Canteen and Interstate --which are both in Chicago--will be combined or how the overlap of their operations will be handled.

The acquisition is expected to reshuffle the rankings of contract feeding's sales leaders.

Business and industry feeding accounts form the largest percentage of Canteen's nonvending revenues. About 65% of Canteen's nonvending accounts are with "white-collar' companies, such as law offices, insurance companies and banks. But the company also claims to be one of the largest "blue-collar' feeders, if not the largest, with a strong penetration of heavy industries, such as automobile manufacturing.

Although Interstate United, which was founded in 1904, has moved into the white-collar market in recent years, the major component of its business and industry feeding accounts is blue-collar installations.

Interstate's concessions division has accounts at numerous theme parks, civic centers and professional sports facilities, including the Los Angeles Coliseum, the Oakland Coliseum and Minneapolis's Hubert H. Humphrey Metrodome.

Canteen has a handful of such accounts, including Yankee Stadium, but it has focused more intently within its leisure and recreation services division on state and national parks.

Vending machine accounts, including those in business and industrial settings, generated about one-third of Canteen's revenues in 1984.

Interstate also does a large amount of vending-machine business, though company officials said they could not specify an exact amount.

Robert A. Kozlowski, Canteen president, said he considers the business-and-industry and leisure-and-recreation markets to be the largest area of potential growth for Canteen.

He added that health care and educational feeding-- which Interstate and Canteen are both involved in to a limited extent--also represent growth areas for the company.

Transworld Corp., which reported earnings of $115 million on revenues of $2 billion in 1984, also owns the Hilton International lodging chain and Spartan Foods of South Carolina, which operates more than 300 Hardee's fast-food restaurants and more than 200 Quincy Family Steak Houses.

The proposed purchase of Interstate "is the first step in our overall campaign to grow by acquisition,' said Coleman Sullivan, Transworld's director of financial relations. "It is certainly not the last or only acquisition we will make.'

The company has acknowledged plans to sell its Century 21 real estate company. Analysts have speculated that the proceeds may be used for further acquisitions, particularly in the lodging and food-service industries.

The Interstate deal is the latest in a series of major acquisitions within the contract-feeding segment this year.

Allegheny Beverage Corp. recently completed the acquisition of Servomation Corp. from City Investing Co. for $225 million. Servomation has been merged with Allegheny's other food-service company, Macke Co., to form a new contract-services concern called Service America, whose 1985 sales are expected to exceed $1.1 billion.

In February, Marriott Corp. acquired Service Systems of Buffalo from R. J. Reynolds for an undisclosed amount. Executives of competing contract-feeding companies said the purchase would enable Marriott's Food Service Management division to add more feeding accounts within unionized facilities.

Industry figures contended that because many segments of the contract-feeding business are saturated, substantial growth is possible only through acquisitions.

They also attributed the wave of acquisitions to the growing potential of the health-care, nursing home and continuing care markets, which are expected to grow substantially as the baby-boom generation ages.

Many smaller companies are involved in health-care feeding and may be viewed by companies eying that expanding market as convenient growth vehicles and means of increasing economies of scale, the observers said.

Whatever the reason for the spate of acquisitions, observers of the contract feeding segment have revised their rankings of the segment's top players.

With anticipated 1985 systemwide sales of $1.5 billion, Canteen may find itself in a race with Marriott for the segment's No. 2 spot, behind ARA Services. Marriott, which acquired two other companies in addition to Service Systems last year, is expected to post systemwide sales of $1.55 billion for the current fiscal year, as compared with ARA's projected $1.6 billion.