Chanticleer Holdings is trading its burgers for biotech.
The struggling operator of Hooters, American Burger Co. and other chains on Friday announced perhaps the most unusual merger in restaurant industry history.
The Charlotte, N.C.-based company said it is merging with privately held Sonnet BioTherapeutics, a Princeton, N.J.-based company that makes cancer drugs.
Once the merger is complete, Sonnet’s shareholders will become majority owners of publicly traded Chanticleer Holdings. The merged company will then take the Sonnet name.
The company will not make chicken wings and biopharmaceuticals under the same roof. Chanticleer plans to spin off its existing operations to current stockholders as a separate company.
Essentially, Chanticleer is using its organization to take a private company public and provide it with some cash to help fund operations.
Once the deal is complete, Chanticleer shareholders will own 6% of the combined company, with Sonnet shareholders owning the rest. Other terms include a $6 million payment from the biotech company to Chanticleer to help the restaurant company pay off debt and provide working capital.
“The transaction with Sonnet comes after a thorough review of Chanticleer’s current operations and strategic alternatives,” Chanticleer CEO Mike Pruitt said in a statement. “The decision by our management and board to choose Sonnet to be our merger partner will allow our shareholders to participate in a dynamic company with a robust pipeline, backed by a sizable commitment from an institutional investor to continue the development of drug candidates.”
Pruitt said that Chanticleer is still “optimistic in the direction of our better burger business” and the success of its current strategies. He said the new platform will “have a balance sheet and overhead structure” better suited “for a growing restaurant company that will allow scalability we have been seeking both organically and through acquisitions.”
But he said that the merger would enable the company’s shareholders to “not only maintain their ongoing investment in the restaurant business but will also have potential upside from the potential growth and expansion of Sonnet.”
Sonnet’s top product is expected to go to clinical trials next year.
The merger comes as Chanticleer has seen wider losses this year that have put the company’s future into significant question.
The company operates 46 fast-casual restaurants, including American Burger Co., BGR: The Burger Joint and Little Big Burger, as well as five-unit Just Fresh. It also operates eight Hooters locations in the U.S., South Africa and the U.K.
The company reported an operating loss of $4.7 million in the first six months of the year and a net loss of $5 million, according to its most recent financials. The company has closed four underperforming restaurants this year.
Chanticleer said in August that it had a working capital deficit of $18.1 million and that its “ability to conduct business” for the coming year would depend on its ability to access capital, refinance debt and manage “payment plans” to pay off back taxes.
The company also said in August that it had “$3.4 million of accrued employee and employer taxes.”
Chanticleer received a delisting notice from Nasdaq after its share price had been below $1 for too long.