Prandium CEO Snares Majority Stake at a Bargain

Prandium Inc., the company that owns the Koo Koo Roo, Chi-Chi’s and Hamburger Hamlet restaurant chains, has been awash in debt. And the Irvine restaurant company’s stock barely registers a blip in the over-the-counter arena.

Even so, Chief Executive Kevin Relyea seems to have snared a majority stake in the company for a song.

He recently acquired 95.8 million shares from an investment group for $15,000, about the price of a new Chevy Malibu.

When Relyea acquired the stock Dec. 29 from an Apollo Advisors investment fund, which apparently wanted to unload its holdings in the debt-ridden company, other Prandium shares on the market were trading at 5.5 cents. Theoretically, that would have made Relyea’s acquired stake worth almost $5.3 million.

Since then, Prandium’s stock has more than doubled, boosting the current market value of Relyea’s 95.8 million shares to $13.9 million. The stock closed Wednesday at 14.5 cents a share, up 1.5 cents.

The acquisition, combined with about 4 million other Prandium shares that Relyea previously controlled, gave the chief executive 54.5% of Prandium’s stock, according to a report filed this month with the Securities and Exchange Commission. The sale was not subject to the market price because the price was negotiated in a private transaction between the two parties, Prandium spokesman Rob Carl said.

He also pointed out that the deal would not necessarily create an instant windfall for Relyea.

“Unless you have a buyer willing to buy a block, it’s worth exactly what he paid for it,” he said.

“Really the story is about changing control,” Carl said.

Apollo executives could not be reached for comment, but Relyea said in a prepared statement that the transaction reflected “a change in priorities” of the investment fund.

Restaurant News, an industry trade magazine, said Apollo apparently was shedding the stock to take a year-end write-down on a sour investment. Apollo is a major New York-based fund manager headed by merger mogul Leon Black.

Carl, Prandium’s spokesman, acknowledged that the deal triggered queries from shareholders. “Some said, ‘I wish I could have gotten some of those shares. Why wasn’t it available to me?’ ”

It’s not unheard of for a shareholder to sell stock to an executive, San Diego compensation expert Graef Crystal said, “but in this case you’re giving something that would appear to have a value vastly different from what the person is paying for it.

“Then you have to wonder, ‘Why is that?’ ” he said.

He suggested that the Apollo fund, AIF II, might have tried another option.

“I would have put the block of stock on EBay,” Crystal said, laughing. “I bet I could have gotten more than two-ten-thousandths of a cent a share.”

Relyea, who has headed the restaurant company since 1995, has no plans to buy more Prandium stock, or to dispose of his shares, the SEC filing says.

Prandium also said in the filing that five members of its board of directors resigned Jan. 4 and that the board will now have just two directors. Currently, Relyea is the only board member.

Carl declined to say what changes might occur with the company as a result of Relyea taking control.

In June, Prandium sold its flagship El Torito restaurants to the rival Acapulco restaurant chain in Long Beach for about $115 million, planning to use part of the proceeds to lighten a big debt load, including about $100 million in bonds due in 2002.

Prandium retained its Chi-Chi’s Mexican restaurants in the Midwest, Koo Koo Roo restaurants and Hamburger Hamlets, as well as four El Torito Express eateries, which cater to shoppers and workers who are looking for a quick lunch.

The company had $68.1 million in cash on hand in September, up from $3.6 million at the end of 1999, according to a quarterly report filed with the SEC.

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Penny Ante

Shares of restaurant chain Prandium Inc. have jumped from 5.5 cents at year-end to 14.5 cents as of Wednesday, but they remain far below the 80 cents they fetched in 1999.

Prandium shares on the OTC Bulletin Board, monthly closes and latest

Wednesday: 14.5 cents, up 1.5 cents

Source: Bloomberg News