Marriott : The New Counter Culture : Marriott Seeks to Buy Industry Leader Denny’s

Hotel and restaurant giant Marriott, the owner and franchiser of Big Boy restaurants, said Thursday it has proposed to buy out rival Denny’s, the nation’s largest coffee shop chain.

An acquisition would accomplish Marriott’s goal of overtaking La Mirada-based Denny’s as the largest player in the coffee shop business--considered a mainstay in the sluggish restaurant industry. The merger would also bring under the same corporate roof two chains that trace their roots to Southern California.

Since the deal would combine the nation’s two largest coffee shops, analysts said the merger may raise some antitrust questions, particularly in Southern California where both chains duke it out for customers. “The real question is whether the Justice Department will approve,” says industry analyst James M. Meyer at Janney Montgomery Scott, a Philadelphia brokerage firm.

In a statement confirming industry rumors about merger talks, Marriott said that the two companies were talking but that no definitive agreements had been signed. Marriott, with headquarters in Bethesda, Md., said it wants to buy Denny’s 1,200-shop chain and the company’s 42% interest in the 750-store Winchell’s doughnut houses.

Denny’s shareholders would retain ownership of El Pollo Loco, a chain of specialty broiled chicken restaurants.

Although no proposed purchase price was disclosed, analysts estimated that it would cost Marriott between $650 million and $800 million.

Denny’s managers paid $753.4 million to take the firm private in January, 1985. With no firm value placed on Marriott’s buyout, analysts said it would be difficult estimate how Denny’s managers will fare.

On Wall Street Thursday, Marriott’s shares fell 50 cents to $41.375 in composite trading on the New York Stock Exchange.

Analysts, for the most part, praised the proposed merger, but with reservations. Steven A. Rockwell of Alex. Brown & Sons in Baltimore said the acquisition “makes sense on the surface. After all, Marriott owns the Big Boy chain, and Denny’s is its largest competitor.

“But frankly I’m surprised Marriott would bite off that big a chunk,” Rockwell said. “Their Big Boy operations are struggling right now, and they’d be better served to focus on them.”

Marriott owns and operates 170 Big Boy restaurants, primarily in California and the Washington, D.C., areas, where the restaurants are known as Bob’s Big Boy. The company franchises an additional 729 of the restaurants, which go by several names, including Kip’s Big Boy in Texas or Frisch’s Big Boy in the Midwest. The first Big Boy was a 10-stool counter in Glendale, opened in 1936.

The company, a leader in the hotel and food service industries, has sought to become the same in the coffee shop business. Since acquiring Howard Johnson in November, 1985, Marriott has been converting the familiar orange-roofed roadside restaurants to Big Boys in the attempt to take on Denny’s.

‘Not on Top of Things’

But stiff competition from Denny’s in California, generally weak sales in the restaurant business and a lack of management attention have taken their toll on sales, analysts said.

Industry analyst Meyer said: “The performance record (of Denny’s) is superior to Big Boy. They (Marriott) let things go and were not on top of things as they should have been.”

Denny’s familiar hexagonal signs and the roly-poly Big Boy statues are nearly as ubiquitous as palm trees in Southern California. So what will Marriott do with all those Denny’s? The company isn’t talking.

“All they give is their name, rank and serial number,” quipped one analyst who failed to pry any information from Marriott executives. Some analysts predicted that Marriott would sell off restaurants that compete in the same area.

“They would end up selling one site, take the proceeds and leave one open,” said John J. Rohs, an analyst at Wertheim & Co.

But given the weaker performance of the Big Boy chain, analyst Meyer said Marriott might convert the company-owned Big Boys to the Denny’s logo and cut its ties to franchisees. Such a move might, however, upset franchisees, he noted, if Marriott ended up owning a competing Denny’s down the street. TOP 10 FAMILY RESTAURANT CHAINS

Systemwide Sales Number of (most recent fiscal Chain Outlets year, in million) Denny’s 1,175 $1,100.0 Bob’s Big Boy 958 1,144.9 Friendly Ice Cream 770 517.6 Waffle House 609 174.9 Shoney’s 581 667.0 Int’l House of Pancakes 455 262.1 Howard Johnson’s 440 282.6 Perkins 311 266.1 Village Inn 270 248.0 Country Kitchen 267 175.0

Source: Nations’s Restaurant News