American Blue Ribbon Holdings is splitting up.
The Nashville-based company, which is owned by the insurer Fidelity National Financial, is essentially splitting into two pieces.
The company is doing so with a proposed, complicated shift in the company’s organizational structure. Cannae Holdings, a holding company that Fidelity spun off last year, will own 94% of two restaurant chains: O’Charley’s and 99 Restaurants.
Newport Holdings, which owned 40% of ABRH, will own 95% of Village Inn, Bakers Square and their baking subsidiary, Legendary Baking.
The change is a demonstration that more is not always better in the restaurant business.
ABRH was formed out of the recession, when Fidelity, whose chairman is former CKE Restaurants Chairman Bill Foley, bought up struggling restaurant chains, some of them out of bankruptcy.
American Blue Ribbon sold one of its chains, Max & Erma’s, to Glacier Restaurant Group in 2016.
But there have been questions about the structure of the company for some time.
Last year, ABRH tried to sell the company to J. Alexander’s Holdings, the owner of J. Alexander’s, in a stock deal that would have given Fidelity and Foley a controlling interest in J. Alexander’s—which Fidelity used to own before spinning it off in 2016.
Shareholders rejected the deal in February and the sale fell through. The split appears to be the result. In a statement in May, Foley said that the operations of ABRH will be “greatly simplified” with the change.
The deal could also set up a future move involving Ninety Nine and possibly O’Charley’s.
On a conference call with analysts in May, Cannae President Brent Bickett explained that 99 could still be sold.
“We think 99 has the potential to be monetized,” he said. “It’s very attractive. It outperforms competitors.”
The “wild card,” however, is O’Charley’s. If the company can “get back to a growth profile” the combined 99-O’Charley’s operation would be an “attractive IPO candidate” or a candidate for a sale.
By reorganizing, Bickett said, the company will “be able to concentrate on two concepts instead of five.”
But most of those concepts have done relatively well. In the first three months of the year, 99’s same-store sales rose 1.4%, Village Inn’s same-store sales increased 1.9% and Baker’s Square’s 2%. But O’Charley’s same-store sales declined by 1.6%.
And, the restaurant group as a whole generated an EBITDA (earnings before interest, taxes, depreciation and amortization) margin of just 1.9% for the quarter.
But Bickett said that one-time costs and other issues hurt margins in the period. And, he said there is “significant opportunity to improve O’Charley’s operations.”
That said, American Blue Ribbon has had its challenges. In April, the Nashville Post noted that Cannae bought ABRH’s debt, currently at $124 million. American Blue Ribbon fell out of compliance with some of the performance requirements in its lending agreement last year.
The simplified structure could theoretically help the chains operate better. They could get more individual attention while placing like-minded restaurants with one another—Village Inn and Baker’s Square are family dining concepts, while O’Charley’s and 99 are casual dining chains.
But at the end of the day, ownership structure doesn’t matter nearly as much as what the brands do to get into their customers good graces while ensuring they can operate profitably.
There are multiple examples of success at chains that operate on their own, and at chains that are part of large ownership groups.
Similarly, chains have failed on their own, and they have failed as part of groups.