FAT Brands Inc., parent to Johnny Rockets, Fatburger and other restaurant brands, has agreed to merge with controlling stockholder Fog Cutter Capital Group Inc., the company said Friday.
Beverly Hills, Calif.-based FAT Brands’ stock rose more than 20% to about $7.50 a share at mid-morning after the announcement.
“The merger is intended to provide FAT Brands with increased financial flexibility and simplified corporate structure, at a time in the restaurant industry when committed capital and first mover advantage are critical to strategic acquisitions,” the company said in a statement.
Andy Wiederhorn, who serves as FAT Brands president and CEO and founded Fog Cutter Capital, said in a statement, “We have taken a number of steps in 2020 to bolster our balance sheet and ensure that FAT Brands is as nimble and opportunistic as possible, especially in this environment.”
Wiederhorn said the merger would give the company financial flexibility.
“As we have disclosed in the past, FAT Brands has considered a combination with Fog Cutter as another step in our efforts to simplify our corporate structure and eliminate limitations that restrict our ability to use common stock for accretive acquisitions and capital raising,” he said.
The company said Fog Cutter Capital holds more than $100 million of net operating loss carryforwards (NOLs), which could only be made available to FAT Brands as long as FCCG owned at least 80% of the company.
“With this combination, the NOLs will be internalized at FAT Brands, and we will now have much greater flexibility and optionality in our capital structure,” Wiederhorn said.
In September, FAT Brands completed a $25 million acquisition of retro diner brand Johnny Rockets. The franchising company also owns Buffalo’s Cafe, Buffalo’s Express, Hurricane Grill & Wings, Elevation Burger, Yalla Mediterranean and Ponderosa and Bonanza Steakhouses.
“We believe that the steps we have taken in 2020 will position us to capitalize on organic and acquisition-led growth in the future,” Wiederhorn said Friday. “We look forward to 2021, when we hope to experience some normalization as the pandemic subsides. With the acquisition of Johnny Rockets, in a post-COVID environment.”
He said the company still expects to generate two times the 2019 earnings before taxes, depreciation and amortization of $7.7 million.
In connection with the Fog Cutter combination, FAT Brands declared a special stock dividend payable only to holders of its common stock other than Fog Cutter, consisting of 0.2319998077 shares of FAT Brands’ 8.25% Series B Cumulative Preferred Stock for each outstanding share of common stock held by such stockholders, with the value of any fractional shares to be paid in cash.
“Fog Cutter will not receive any portion of the special dividend, which will have a record date of Dec. 21, 2020, and expected payment date of Dec. 23, 2020,” FAT Brands said in a statement.
FAT Brands, with nine restaurant brands, franchises more than 675 units globally.
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