Pizza Hut takeaway upsets franchisees

By KARYN SCHERER

A $28.3 million deal which will see Pizza Hut swallow its biggest rival has hiccupped, with some franchisees accusing Eagle Boys of taking too big a slice of the purchase price.

The offer by Pizza Hut to buy the New Zealand arm of the Eagle Boys pizza chain was due to go unconditional this week, but has now been delayed for a fortnight while loose ends are tied up.

It is understood Eagle Boys franchise agreements do not include a clause allowing for the possibility of a takeover.

However, concerns by some franchisees about the sale is not expected to derail the deal, which is due to see more than 50 Eagle Boys pizza outlets either rebranded or closed down by the end of November.

One franchisee, who would only speak to the Business Herald on condition he was not named, said yesterday that fewer than half of the chain's 53 franchisees were keen to sell their businesses.

However, they felt they had no choice and were bitter about the deal.

Some were particularly upset they were not being compensated for loss of future income.

"We were put in a situation where we had to accept what was offered or our businesses would have suffered," he said.

Under the deal, the Christchurch-based managing director of Eagle Boys, Gavin Cook, has agreed to buy back all the individual franchises.

He will then sell the businesses as a single package to Pizza Hut owner Restaurant Brands.

It is understood franchisees will receive an average of around $300,000 each.

Most are believed to have made an original investment of around $200,000.

That leaves about $12 million to be divided between Mr Cook and others involved in the deal, including the chain's Australian founder, Tom Potter.

Mr Cook said yesterday he was unaware of any dissatisfaction. He described the $12 million figure as inflated, and stressed he believed new franchisees had done particularly well.

"The pot was sweetened as the normal fees attached to a sale were all waived in this situation."

Restaurant Brands chief executive Jim Collier also defended the sale price, saying he believed it was money well spent.

"We were not in a position to defend against other competitors' entry with the Pizza Hut system we had previously.

"From now on we will be much better set up."

Mr Collier also dismissed concerns that the deal could lessen competition in the $100 million pizza market.

The deal will give Pizza Hut around two-thirds of the market. It plans to close 10 of its own stores, as well as another five Eagle Boys stores, leaving it with around 80 outlets.

"We are not going to see any lessening of competition, because there is still Pizza Haven out there and there are still about 130 independent outlets throughout the country."

Meanwhile, the deal has prompted the Franchise Association to discuss the issue of takeovers at its board meeting next week.

The association's chairman, Win Robinson, said few franchise agreements took into account the possibility of a takeover of the master franchise because such moves were rare.

His advice to potential franchisees was to discuss the issue with the franchisor if they had concerns.

"It's certainly worthwhile bringing up at the association, and I think it's probably a subject we want to get a working committee on, just to have a look at it."