Luby’s announced Thursday that it reached an agreement to sell its Fuddruckers franchise business to a current franchisee for roughly $18.5 million.
The Fuddruckers restaurants were sold to Black Titan Franchise Systems, a newly formed affiliate of Nicholas Perkins, who owns foodservice management company Perkins Management Systems in Washington, D.C. As part of the deal, Black Titan will obtain the master ownership of the Fuddruckers brand worldwide. There are 92 Fuddruckers stores in the U.S., including 13 refranchised units operated by affiliates of Perkins. Luby’s and its financial adviser ran a sales process for the Fuddruckers franchise business, contacting over 150 entities before accepting the best offer, which came from the Perkins group.
The parties currently anticipate the transaction will close within the next 90 days.
"We're excited to be purchasing Fuddruckers and look forward to working with Fuddruckers' many dedicated, highly capable franchisees to further build this brand," Perkins said in a statement. "As a Fuddruckers franchisee, I have a vested interest in ensuring that all Fuddruckers franchisees have the resources, infrastructure, and operational and marketing support they need to maximize their return on investment. This strategic alignment, when combined with the fact that we sell the 'World's Greatest Hamburgers', will ensure the long-term success of the brand and our franchisees."
The agreement is another step in Luby’s plan of liquidation, which involves selling assets, paying liabilities, and returning the remaining cash to shareholders. The plan was unveiled in September after Luby’s couldn’t find a buyer, and it was approved by shareholders in November. The company estimated it would generate between $92 million and $123 million (or about $3–$4 per share of common stock based on 30,752,470 shares) from its liquidation. In November 2020, Luby’s announced it retained JLL, a professional services firm, to assist in the “orderly sale” of its real estate holdings.
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The company said most of the value from the recent transaction will be derived from Black Titan’s issuance of a note to Luby’s and assumption of certain liabilities. It also noted that there can be no assurance that it will realize or receive the full value of the agreement with Black Titan, but it doesn’t plan to adjust its estimated liquidation value. The amount gained from the transaction will be in addition to the value Luby’s will realize from the sale of company-owned real estate at a number of company-owned Fuddruckers stores.
In the past year, Luby’s completed the transfer of 13 company-owned Fuddruckers to affiliates of Perkins. The brand is also in advanced discussions to complete the sale of a 14th company-owned store as well as establishing a 15th new location with affiliates of Perkins. Following these transactions, Luby’s will have five stand-alone corporate Fuddruckers stores and four combo Fuddruckers operating with Luby’s Cafeterias.
Luby's other operations—Luby’s Cafeteria and Culinary Contract Services—haven't been sold yet. In April, the company reported that it operated 58 Luby’s Cafeterias and Culinary Contract Services at 25 locations. It noted that restaurants are “business as usual” as the company progresses through the liquidation plan, which is expected to be completed by June 30, 2022.
Luby’s issues began long before COVID. The company began a strategic review process in September 2019, back when it operated 121 restaurants (78 Luby’s Cafeterias, 42 Fuddruckers, and one Cheeseburger in Paradise) and also served as the franchisor for 103 Fuddruckers units across the U.S., Canada, Mexico, Colombia, and Panama. Back in August 2015 there were 93 Luby’s, 75 Fuddruckers, eight Cheeseburger in Paradise locations, in addition to roughly 100 franchised Fuddruckers stores.
During the early days of COVID, more than half of the corporate staff was furloughed and salaries for non-furloughed employees were cut 50 percent. Later in April, the chain announced it tapped a $10 million Paycheck Protection Program loan and received a delisting warning from the New York Stock Exchange because its stock price fell below $1 per share for 30 straight days.