Carl’s Jr. Owner to Take Over 28 Rally’s Sites

CKE Restaurants Inc. has agreed to take over 28 Rally’s Hamburgers Inc. locations in California and Arizona and operate most of them as Carl’s Jr. units, the companies said Wednesday.

The deal would let the 660-unit Carl’s Jr. expand its presence in California by quickly adding new locations and help Louisville, Ky.-based Rally’s eliminate costs associated with the far-flung group of restaurants.

“The closest company-operated units we have are in St. Louis, and we weren’t making any money on the restaurants in California and Arizona,” said Donald Doyle, Rally’s president and chief executive. “This should make for a real positive swing in cash flow for us, and it should work out well for Carl’s Jr.”

The deal calls for Rally’s, which operates 250 company-owned units in Eastern states, to turn over operation of the 28 restaurants to Carl’s Jr. in return for a percentage of gross revenue. Rally’s will continue to own the restaurants.

Rally’s has several company-owned restaurants in Los Angeles and Orange counties.

The deal does not include 23 Rally’s restaurants operated elsewhere in the state by franchisees.

Rally’s restaurants near existing Carl’s Jr. stores won’t be converted. And CKE executives are still trying to determine what the converted Rally’s units will look like. Both restaurant chains offer fast-food menus, but the companies have significantly different operations.

Rally’s restaurants feature a simple, burger-based menu, two drive-through windows and no indoor seating. Carl’s Jr. restaurants have a larger menu--some have added Green Burrito brand Mexican-style fast food--large, indoor dining rooms and salad bars.

The deal was driven by an April 29 agreement that ended CKE Chairman William P. Foley II’s hostile takeover bid of Giant Group Ltd., a Beverly Hills-based company that owns a controlling stake in Rally’s. As part of that deal, Foley and CKE agreed to take a 20% interest in Rally’s.