Saturday, March 21, 1998
Skyline suitor plans third
offer after vote delayed

The Cincinnati Enquirer

A twice-spurned suitor of Skyline Chili Inc. plans to make a third offer for the Fairfield-based restaurant chain, a top executive with the biddingcompany said late Friday.

About Meritage

  • Business: Restaurant and hotel owner and operator.
  • Based: Grand Rapids, Mich.
  • CEO: Christopher Hewitt.
  • Operations: 25 Wendy's Old-Fashioned Hamburgers restaurants; two full-service hotels, all in Michigan.
  • 52-week high: $5.31 2/3.
  • 52-week low: $1.
  • Friday close: $1.62 1/2.
  • News of the potential offer from Meritage Hospitality Group in Grand Rapids, Mich., came after Skyline unexpectedly postponed a special shareholder vote earlier Friday. That vote, scheduled several months ago, was to accept new, out-of-state ownership of the chili parlor chain.

    ''It's not hostile,'' Robert Schermer, vice president of Meritage, said of his company's forthcoming offer. ''It's simply a competing offer. The business is for sale. Management (of Skyline) has an offer on the table. We have another offer.''

    Mr. Schermer said Meritage hadn't told Skyline it planned to make another go at buying the company. A formal offer, he said, will be presented to Skyline's board of directors before April 13.

    Skyline Chief Executive Kevin McDonnell first learned of Meritage's latest maneuver Friday evening when he was contacted by the Enquirer. ''He's correct in that we were not aware of it,'' Mr. McDonnell said, declining to comment further.

    Mr. McDonnell had postponed the shareholder vote Friday morning because of other last-minute issues brought up by Meritage. At the meeting, Mr. McDonnell said the issues brought up by Meritage were ''not material'' and didn't change the board's endorsement of a pending deal in which a Rhode Island-based venture capital firm would buy a majority stake in Skyline.

    He said they were related to Skyline's inaccurate interpretation of some of Meritage's financial results in a letter to shareholders. About 25 shareholders were gathered Friday morning at the Cincinnati Marriott to vote on a $33.4 million leveraged buyout (LBO) of Skyline.

    As part of the LBO, Fleet Equity Partners of Providence, R.I., would contribute $10 million in equity to become majority owner of Skyline. Current management would remain in place and retain an equity stake by investing $1.2 million.

    In exchange, Skyline stockholders, including the three Lambrinides brothers whose father founded the chain in 1949 in Price Hill, would get $6.75 for each share owned. Skyline would become a private company as a result, meaning its stock would no longer trade on a public exchange. Mr. McDonnell told the shareholders at the meeting that the company's financial adviser, SunTrust Equitable Securities, had acknowledged misinterpreting some of Meritage's financial information.

    ''It would not in any way change our evaluation of the (Meritage) offer,'' he said.

    Mr. McDonnell said the company is working on a supplemental proxy statement that will include re-evaluated financial information on Meritage. The proxy will be sent next week to shareholders. Another vote on the Fleet deal is scheduled for April 13.

    Mr. Schermer wouldn't provide details of the offer Meritage plans to make except to say it would be ''higher than the two previous offers'' and would be a combination of cash and stock, as were the other offers.

    Second offer

    Meritage's second offer, the one that caused the shareholder vote to be delayed, came just last month. Skyline shareholders had already been sent their proxies to vote on the Fleet deal when Meritage made that overture.

    Meritage, however, withdrew its Feb. 18 offer on Feb. 24 after Skyline's financial adviser asked for further details and about Meritage's ''willingness and ability'' to put up a $1.5 million nonrefundable deposit.

    In that offer, Skyline shareholders would have received $5.75 in cash and $2.50 in Meritage common stock per share of Skyline's stock. Meritage stock, which trades for around $1.50 a share on the OTC Bulletin Board, is considered high risk.

    Skyline's board said in the filing with the Securities and Exchange Commission that the ''proposed merger of Meritage and Skyline would result in a combined company with significantly lower earnings and operating cash flow, greatly increased leverage, lower book value, reduced working capital and lower cash reserves.''

    The Fleet deal was all but assured because is had been endorsed by the Lambrinides and company insiders, who together own 67 percent of Skyline's 3.4 million shares outstanding.

    Mr. McDonnell said 90 percent of Skyline's shares had been voted in favor of the Fleet deal. He said the board adjourned the shareholder meeting - and thus the official vote tally - ''out of caution and in order to protect the integrity of the shareholder proxy.''