Dow Jones Newswires
UNDER A BUCK: Boston Chicken Stock
Appears Worth Little
By RICK STINE
A Dow Jones Newswires Column
NEW YORK -- Things had been quiet on the Boston Chicken Inc.
(BOSTQ) bankkruptcy front for awhile until a little bombshell was dropped
Wednesday.
An investment group, appropriately named Boston Market Acquisition Co.,
submitted an offer to the bankruptcy court overseeing Boston Chicken's
reorganization. BMAC is willing to pay $140 million for Boston Chicken's
assets. Of the $140 million, $105 million is in cash and the rest in assumed
liabilities.
The court has been overseeing an auction process and this is apprently the
best offer out there. Boston Chicken's board has approved it. Creditors have
not.
The man behind the bid, Jacob C. Baum, has an investment group behind him
and a plan to bring the Boston Market restaurant brand back. The plan,
Baum told me in an interview, involves international expansion and selling
Boston Market products in supermarkets.
"A new financial structure is the key," Baum said, referring to the heavy debt
load that sent Boston Chicken into bankruptcy court to begin with.
As is the case for most shareholders in debt-laden companies trying to
reorganize, it's that heavy debt load that threatens to wipe out the equity
value in Boston Chicken.
In fact, the value of Boston Chicken's equity is the million dollar question.
The stock market seems to think the equity is worth about $30 million (take
the number of shares outstanding and multiply it by the stock price).
My gut tells me it's worth nothing.
Here's why:
If this bid is accepted by the court, or even a slightly sweetened bid, which
some observers think is likely, it doesn't even come close to paying off
debtors. There's more than $600 million of convertible bonds outstanding
and as of several months ago, the company had drawn down $56 million in
debtor-in-possession financing. Debtor-in-possession financing, which is
money raised by a company to help it operate while going through
bankruptcy proceedings, is always the most senior of debt.
More than $300 million was owed to banks and finance companies at the
time of the Chapter 11 filing last year.
Remember, $105 million of the bid on the table is cash. And we've just
identified more than $900 million of debt. Whew! That doesn't come close to
paying the bondholders and bankers. The convertibles don't trade often but
changed hands Wednesday around 4 cents to 5 cents on the dollar.
And loans banks had made to Boston Chicken before it went into
bankruptcy were trading around 15 cents to 20 cents on the dollar.
So if the people who LOANED money to this company expect to see
returned to them pennies instead of dollars, why should shareholders expect
to get anything?
They shouldn't.
Assuming the asset sale goes through, Boston Chicken will own one thing: a
51% stake in Einstein/Noah Bagel (ENBX). But that stake is worth only
about $12 million. And if it was sold, proceeds would likely go to the
Boston Chicken creditors, not shareholders.
There's a side-story with Einstein/Noah: if the 51% stake is sold to a single
entity, a change in control of the company has occured. And that could force
Einstein/Noah to redeem a $125 million bond issue it privately placed a
couple of years ago.
In a recent filing, Einstein/Noah indicated it had about $16 million in cash,
accounts receivables and inventories - an amount far short of what it would
take to pay off that convertible issue.
Back to Baum.
He's had experience in the restaurant business. He ran Canyon Cafe, a
restaurant chain that focuses on Southwestern food, before it was sold to
Apple South. He sits on the board of Furr's/Bishop's Inc., another restaurant
company.
He says that more than 300 unprofitable Boston Market stores have been
closed since last year, bringing the total number of stores open to 866.
He wants the relatively new management team at Boston Chicken to remain
in place. He sees big value in leveraging the company's well-known name.
Baum sees getting Boston Chicken back on its feet as a private company
with an eye toward eventually doing an initial public stock offering
somewhere down the road.
He says he hopes equity investors who didn't fare well the first time around
with Boston Chicken will have faith enough to invest in the company again.
That might prove to be a hard sell.
By Rick Stine; (201) 938-5151; rick.stine@dowjones.com |
