Chicken chains tussle over Twin Cities sites

  • Article by: MIKE HUGHLETT , Star Tribune
  • Updated: November 5, 2012 - 9:39 PM

Popeyes has a deal to buy 14 area KFC outlets, but KFC has now filed an objection.

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Popeyes Chicken & Biscuits

Popeyes' attempt to pump up its meager Twin Cities presence is turning into a cockfight with fried chicken archrival KFC.

Popeyes' corporate parent, AFC Enterprises, recently forged a multimillion dollar deal to buy 14 area KFC outlets from a bankrupt KFC franchisee. But with a U.S. bankruptcy court in Minneapolis set to possibly approve the deal Tuesday, KFC is saying "hold the fryer."

The country's No. 1 chicken chain filed an objection to the Popeyes' deal Thursday, claiming there's a higher bid for the bankrupt Twin Cities outlets. The proposed bidder, a KFC franchisee, would retain the KFC brand.

Atlanta-based AFC would rebrand the restaurants under the "Popeyes Louisiana Kitchen" moniker, the nation's second-leading fried chicken concept.

Popeyes has only one restaurant in the Twin Cities, an outpost on W. Lake Street in Minneapolis. KFC, a unit of Louisville, Ky.-based Yum Brands, has at least 40 restaurants in the Twin Cities, including the ones AFC wants to buy.

If the bankrupt chicken shacks go to Popeyes, it suddenly has a significant share of the Twin Cities market.

Last month, AFC agreed to pay $13.8 million for 28 restaurants owned by bankrupt Wagstaff Management. Half of those restaurants are in the Twin Cities, half in northern California, where Wagstaff is based.

But in a court filing, KFC said that an affiliate of Oregon-based KFC franchisee Todd Stewart has made an offer of $16 million. It's not clear, however, whether that offer is for the same number of restaurants as AFC's offer.

Stewart's affiliate, LT Investments, would operate the Minnesota and California restaurants without interruption, while AFC would have to close them -- perhaps for months -- to convert them to Popeyes, KFC says in a bankruptcy filing.

LT already has an agreement to pay $850,000 to Wagstaff for the debtor's bankrupt Idaho properties, court records show.

Consulting firm Alvarez & Marsal was commissioned to market Wagstaff's properties, and claims it contacted KFC franchisees and several other potential buyers. The best offer -- and one approved by Wagstaff's main creditor, GE Capital -- came from AFC, Alvarez says.

Alvarez says in court documents that KFC refused to actively engage in the marketing process, thus hindering it.

But in court documents, KFC denied that contention, saying that it "reached out to its franchisee community to determine whether its franchisees would be interested in purchasing any of the debtors' locations."

KFC also objects to the Popeyes sale because it claims the deal involves some of its intellectual property -- including controls to chicken fryers.

"While the fryers are not themselves proprietary, the controls for the fryers contain confidential trade secrets," KFC said in a court filing.

Mike Hughlett • 612-673-7003

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