California firm may
buy isle eateries

Pizza Hut, Taco Bell, Long John
Silver and A&W are up for sale

California private equity investment firm Brentwood Associates is exploring the purchase of Hawaii's Pizza Hut, Taco Bell, Long John Silver's and A&W All American Food restaurants from Theo H. Davies & Co. Ltd.

The 86 restaurants are being shopped via a prospectus prepared by Houlihan Lokey Howard & Zukin, an international investment banking firm, for an expected sale price of between $45 million and $50 million.

Theo H. Davies President Henry Katsuda did not return calls.

Brentwood Associates specializes in midsize businesses. It seeks equity investments of $20 million to $75 million, according to

Brentwood Operating Partner Tom Davin would not discuss Theo Davies, but he has been in Hawaii recently.

He also is former chief operating officer of Taco Bell Corp. and was a founding executive of Tricon Global Restaurants, now called YUM! Brands, which was spun off from Pepsico in 1997.

YUM! is the franchiser of the Theo Davies restaurants and would determine the suitability of any potential buyer, according to previous comments by Bruce Stebbins, Hawaii general manager for YUM!

Despite intense competition in the fast-food industry, two of the restaurant chains are performing well, said David Palmer, a UBS analyst who covers YUM!

"Taco Bell is on track to have its second great year in a row. Pizza Hut could have its best year since 1999," he said.

Each restaurant chain is touting new "better for you" menu items, Palmer said.

"Lately they're trying to use co-branding to enhance sales per square foot," he said.

Co-branding is when both restaurants' fare is available at one location. For example, Hawaii's only Long John Silver's location, in Moanalua Shopping Center, is co-branded with A&W All American Food.

YUM! also counts KFC among its brands, but the 30 KFC restaurants and 21 Burger King restaurants in Hawaii and the Pacific are owned by Kazi Foods Inc., reportedly the second-largest KFC franchisee in the United States.

Private equity firms such as Brentwood generally invest in or purchase companies with an exit strategy in mind, said Richard Dole, chief executive officer of Dole Capital LLC, a Hawaii-based private equity investment banking firm.

He said Theo Davies' parent Jardine Matheson Ltd. wants to exit the Hawaii market.

"Jardine Matheson wants out. They're pricing it to the point where they can get out," Dole said.

That would make room for someone else to "get in, make a few changes, and maybe they can shop around for another buyer.

"(Brentwood) wouldn't buy it unless they felt they were getting it at a price where they can make money," he said.

Davies, a former big-five Hawaii company, has been owned since 1973 by Hong Kong-based Jardine, a more than 170-year-old conglomerate that conducted business with Davies' predecessor, Starkey, Janion & Co., in the 1800s.

Jardine purchased Davies' automotive, restaurant and heavy equipment businesses when there were no longer any Davies descendants interested in running the businesses. More recently, Jardine has decided to focus on expanding its stake in Asia.

Jardine's $100 million sale of the six Theo Davies auto dealerships to Reed/Jones Acquisition HI LLC closed at the end of last year.

Reed/Jones is a partnership developed by multistate car dealer Fletcher "Ted" Jones and East Coast car dealer Gene Reed. The deal included the Mercedes-Benz, Jaguar, Land Rover and Porsche franchises for Hawaii as well as two Honda dealerships on the Big Island and a repair shop.

Theo Davies' Pacific Machinery unit, which, among other functions, sells and maintains Caterpillar equipment in Hawaii and the Pacific region, also is for sale.


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