Chanticleer Holdings

[Hawk4value]

Just read that Robert B. Prag has filed a 13G stating he has a 7.2% position, or 90,000 shares, in CCLR. Anyone know this guy????

 

His bio states "......Robert B. Prag,...... age 47, founded Del Mar Consulting Group (DCG) in June 1999. He has spent the past twenty-four years in senior active roles in various areas of investment, strategic planning, mergers and acquisitions, corporate finance, reverse mergers and investor relations. He is also an active private investor primarily in microcap public companies......... From 1983 through 1992, Bob was a Senior Vice President with Corporate Investment International ("CII") in Maryland. At CII, Bob concentrated on mergers & acquisitions and business strategies.........From 1993 through 1998, Bob was the Senior Vice President at a west coast-based financial public relations firm. He directed all efforts in assisting client companies in strategic management planning and capital formation, and during his tenure, client companies completed capital raises of more than $250 million..........Bob's name and reputation as a highly competent and ethical professional is very well-known among the nation's leading micro-cap and small cap money managers, hedge funds, analysts, investment bankers and retail stock brokers........"

[OracleofCarolina]

How was he able to get all those shares?

[Ballinvarosig Investors]

How was he able to get all those shares?

Prag has partnered Puritt before on other investments (Inferx for one), so I imagine he has the scuttlebutt on Chanticleer directly from the horses mouth, or so to speak. As Chanticleer is dominated by several large shareholders who would be familiar with each other, it's likely that Prag bought directly from another shareholder through a non-open market acquisition.

[Hawk4value]

I have noticed that PALISADES MASTER FUND LP has been unloading large quantities of shares for quite some time. Maybe Prag has bought from these people. Does anyone have any scuttlebutt on this entity, and/or why they have been a seller of shares???

[Parsad]

Hawk,

 

I don't want to comment too much as we are greater than 5% shareholders, but your assumption is correct.  Palisades, who have been supportive of CCLR for many years, had to liquidate their holdings in their fund during the credit crisis and have been trying to sell their shares slowly over the last year and a half.  Cheers! 

[OracleofCarolina]

Another 13g filed yesterday

[OracleofCarolina]

Not sure how this will affect Chanticleer's note

 

Private equity firm Wellspring Capital Partners is in talks to buy Hooter's of America Inc., franchiser of more than 400 beer, boobs and wings establishments throughout the world.

 

Fortune has learned that the process began nearly a year ago, with North Point Advisors representing the Atlanta-based company. No info yet on financial terms, although the company is believed to generate around $1 billion in annual revenue.

 

"It's a very tricky deal," says a private equity investor whose firm took at least an initial look. "I'm not saying it can't be done, just that it isn't cut-and-dry."

 

One of the complications is that Hooter's of America doesn't actually oversee all current Hooter's locations. A small handful of stores -- including one in Manhattan -- are owned by a Clearwater, Fla.-based company called Hooter's Inc. Same goes for the eponymous hotel and casino in Las Vegas.

 

Another is that the selling party would be a disputed estate, rather than an individual or other financial sponsor. Hooter's of America was formed in 1984 when a man named Robert Brooks bought franchising rights from the Clearwater, Fla.-based founders, and quickly expanded it into a global casual dining empire. As he told Fortune back in 2003, "Good food, cold beer and pretty girls never go out of style."

 

But Brooks died in 2006, soon after which began a battle over his estate.

 

On one side was Brooks' wife Tami, who wanted one-third of the estate and argued that she has been denied information and monthly payments. On the other was Brooks' son from a previous marriage, Coby, who serves as both estate administrator and Hooter's CEO (you might have seen him earlier this year on Undercover Boss). As part of their settlement earlier this year, the two sides agreed to solicit bids for Hooter's of America.

 

It is unclear if Wellspring would keep Brooks in charge, or bring in its own management.

 

Wellspring declined comment, while Hooter's did not return our calls.

 

 

[OracleofCarolina]

http://bit.ly/fhNxek

[OracleofCarolina]

http://sec.gov/Archives/edgar/data/1106838/000114420411001019/v207394_s1.htm

 

Rights offering by Chanticleer

[Hawk4value]

The following passage was in the recent CCLR 10K for 3/31/2011. I am trying to figure out what % of HOA, LLC. CCLR owns. I calculated it to be .49%. Also I did not read about any money flowing down to CCLR from HOA operations. Can anyone shed some light??

 

"...On January 24, 2011, Investors LLC and its three partners combined to form HOA Holdings, LLC ("HOA LLC") and completed the acquisition of Hooters of America, Inc. ("HOA") and Texas Wings, Inc. ("TW"). 

Together HOA LLC has created an operating company with 161 company-owned locations across sixteen states, or nearly half of all domestic Hooters restaurants and over one-third of the locations worldwide. The Company received $400,000 in January 2011 for services provided in completion of the purchase of HOA and TW by HOA LLC.  The Company has a consulting agreement with HOA LLC and is scheduled to receive $100,000 in January of each year for director and other services provided by Mr. Pruitt.  We have accrued two months of the consulting fee in the amount of $16,667 at March 31, 2011.

 

Investors, LLC had a note receivable in the amount of $5,000,000 from HOA that was repaid at closing.  Investors LLC then invested $3,550,000 in HOA LLC (approximately 3.1%) ($500,000 of which is the Company's share).  One of the investors in Investors LLC that owned a $1,750,000 share is a direct investor in HOA LLC and now carries its ownership in HOA LLC directly.  The Company now owns approximately 14% of Investors LLC...."

[Parsad]

I think the income will be retained in HOA Holdings.  I don't think any of it will be trickling down, but they will benefit from their ownership in HOA. 

 

I thought Chanticleer would have gotten significantly more for their right of first refusal ($2-3M+), but it looks like they just got a seat on the board, and Chanticleer will be paid $100K a year for consulting.  It looks like their only ownership is the $500K investment through Investors LLC.  Maybe they'll shed more light on the subject in the next quarterly report.  Cheers!

[Hawk4value]

I think the income will be retained in HOA Holdings.  I don't think any of it will be trickling down, but they will benefit from their ownership in HOA.  

 

It seems that CCLR is a holding company/conglomerate for several businesses. With HOA buried in this structure it seems like the only way to realize its value, and get it reflected in CCLR's stock price, is an IPO?? 

 

 

[Carvel46]

Anyone know who Michael Haley is?

I can't find info on him.

Thanks!

 

Item 1.01 Entry into a Definitive Material Agreement.

 

On August 12, 2011 (the “Closing Date’), Chanticleer Holdings, Inc. (the “Company”) and Paragon Commercial Bank (“Paragon”) entered into a credit agreement (the “Credit Agreement”).  The Credit Agreement provides for a $2 million revolving credit facility with a one (1) year term from the Closing Date.  The Credit Agreement is available to be drawn at the Company’s discretion to finance investments in new business ventures and for the Company’s general corporate working capital requirements in the ordinary course of business.

 

Borrowings under the Credit Agreement bear interest at the greater of:  (i) floor rate of 4.50% or (ii) the Wall Street Journal’s prime plus rate (currently 3.25%) plus 0.50%.  All unpaid principal and interest are due one (1) year after the Closing Date.  Any borrowings are secured by a lien on all of the Company’s assets.  The obligations under the Credit Agreement are guaranteed by Mike Pruitt, the Company’s Chief Executive Officer.

 

In addition, the Company entered in a Collateral Agreement pursuant to which Michael Haley pledged cash collateral of $2 million to Paragon to secure any borrowings.  The Collateral Agreement bears interest on amounts drawn at the rate of 1.00% monthly, payable in arrears.  The Company also granted to Mr. Haley ten (10) year common stock warrants to purchase 200,000 shares at $2.75 per share and 225,000 shares at $3.50 per share.  The warrants contain standard anti-dilution provisions.

 

On August 18, 2011, the Company issued a press release announcing that it had entered into a Credit Agreement with Paragon.  A copy of the press release is attached hereto as Exhibit 99.1.

 

http://www.sec.gov/Archives/edgar/data/1106838/000114420411048494/0001144204-11-048494-index.htm

[Parsad]

Perhaps he's part of Shaw Food Pty.  Cheers!

[Hawk4value]

It seems that CCLR is again raising money by a share offering as per below. They also have issued a convertible at 18% which can convert into 1.125mil shares. The convertible was purchased by Michael Pruit and several other investors who probably know Pruit.  Sounds like a special deal to me.  Anyone concerned about dilution to existing shareholders???

 

 

5,000,000 Units

Each Unit consisting of one share of common stock

and one warrant to purchase one share of common stock

 

This is a firm commitment public offering of Chanticleer Holdings, Inc. Each unit consists of one share of common stock and one warrant. We expect that the units will be offered at a price of $3.00 per unit. Each warrant entitles its holder to purchase one share of common stock at an exercise price of $3.25. The warrants are exercisable at any time after they become separately quotable and until their expiration on the fifth anniversary of the date of this prospectus.     

 

(1) The number of shares of our common stock to be outstanding after this offering excludes an aggregate of 4,814,018 additional shares of common stock and warrants issuable under various outstanding warrant agreements with expiration dates between October 1, 2016 and August 9, 2021, and exercise prices ranging from $2.75 to $3.50. 

   

 

 

 

[Shane]

I'm not buying right now, but understand that Pruitt has a lot of the outstanding shares of the company... he does not want to dilute his own wealth if he doesn't have to.

 

Individual Restaurant Estimates:

HOA owns roughly 435 Hooters restaurants

HOA states annual revenue $275,000,000

Revenue per store ~ $632,000

Net Income assumptions:

20% profit margin = $126,400

10% profit margin = $63,200

5% profit margin = $31,600

 

Let's say each restaurant brings in $100,000 in earnings.  What multiple would the business deserve?

10X = $31 million

15X = $46.5 million

20X = $62 million

 

Parsad - Care to comment on these estimates?

It seems as if they are moving away from their other businesses, is the asset management company going to be closed down?

[Parsad]

Don't know who Michael Haley is, but I'm guessing he's a private investor and associate/friend of Mike Pruitts.  He bought a really nice home in Palm Beach, so that's all I can find:

 

http://southflorida.blockshopper.com/property/00434133070002850/12121_west_end

 

Our investment in Chanticleer has always been a bet on Mike and a bet that the HOA right of first refusal was worth something.  We continue to believe that. 

 

They've had their struggles since the credit crunch, primarily due to the deal not closing at the time, and then having to burn through cash to stay afloat until it finally did.  But the one thing I can say is that this sucker would have gone down already if somebody else was at the helm.  Mike works his ass off trying to create value, but just the sheer expense of running a public company, staff, legal, etc is a hell of a lot every quarter. 

 

Then when you think things are finally really improving with the listing of the South African restaurants on the Frankfurt Exchange, and that they would be able to finance their operations from small sales of stock in DineOut SA, the European Crisis hits and investors suddenly sell off European small caps in search of liquidity and safety. 

 

I suspect the Paragon financing, along with the convertible warrants (incidentally the dilution would be far greater than 1%...closer to 20% if completely exercised), is simply to finance Chanticleer and the buildout of the Chanticleer Hooter's restaurants.  They plan on building another 26-27 restaurants over the next five years, and almost all of them will be 100% owned by Chanticleer.  I'm guessing that once they get about half of those restaurants completed, the cash flows from them will be enough to allow Chanticleer to be completely break even or better.

 

The investment business is still part of their main business, but it is hard to raise money for a fund.  Matt and Joe are two very smart small-cap analysts...great guys!  Over time they will grow this business as capital comes in, along with all the other side projects Mike always has going.  But the core will be Hooters and you can see by the focus and updated website, that the HOA right of first refusal really acted as a springboard for Chanticleer to become the primary franchisor to expand into emerging markets.  That is huge!  They could very well become the largest single franchisee of Hooter's Restaurants outside of North America over the next 20 years. 

 

And if you are one of those proponents, that see significant growth and earnings for relatively mature restaurants will come from overseas, then that puts Chanticleer in a very good position.  They just have to survive till then!  And we think Mike's innate wheeling and dealing ability puts him at a Darwinian advantage!  ;D  Cheers!

[Shane]

erp good point about the dilution, I was missing some zero's.

[Hawk4value]

Sanjeev, thanks for your comments. There are some observations that I would like to make:

 

1. The biggest issue that I have is when Mike sold CCLR's 50% interest in Investors LLC for $575,000 in May 2009. I think understand why he did it (raise cash to stay in business), but since this was essenitially CCLR's equity for the HOA investment, I would have done everything possible not to have done this. I think Mike should have given the existing stockholders a chance to help via a rights offering or convertible or something, to raise the money. I know I would have been amenable to such an offer. Now instead of 6% of HOA we have 3%.  Big difference.

 

2. The other concern I have is the recent convertible at 18% and 1.125mil shares. I would have loved to have gotten this deal. Why was it not offered to existing shareholders.

 

3. The recent rights offering for the warrants I thought was a good thing and I fully subscribed.

 

4. The recent offering for the 5mil units I think is very dilutive unless I am missing something. It would potentially add 5mil shares plus 5mil shares from the warrants for a total of 10mil, plus the existing 2.5mil, or a total of 12.5mil, an increase of 400% not 20%.

 

Am I missing something????  Having said all this I am sure that Mike is doing his best in a very difficult situation but am interested in your comments nonetheless.  Thanks. 

[Parsad]

Hi Hawk,

 

These are good questions, and possibly a reason why more of us should attend Chanticleer's AGM!  ;D  Let me take a stab at what I think of the questions though:

 

1)  I agree...big difference.  Problem was that was right around the time of very tight credit and things were moving very fast.  You don't get liquidity quick, you're done.  I think money was probably hard to raise at the time, and Mike did what he could to get liquidity quickly.  Also, I believe that was done to get Karp Reilly or the other funds on board to help acquire HOA in the future, since the right of first refusal was attached to it.

 

2)  Yup, I agree.  But as mentioned previously, I think Haley has a longstanding relationship with Chanticleer as an investor/associate.  Some details I found on Haley:

 

He was the largest domestic franchisor of McDonalds restaurants until he sold them to McDonalds in 1993, so he has plenty of restaurant experience and expertise:

 

http://findarticles.com/p/articles/mi_m3190/is_n35_v27/ai_14365733/

 

Was a graduate of University of North Carolina at Chapel Hill and does alot of community work:

 

http://www.rmhofcharlotte.org/news-and-events/press-room/archives/press-release-mike-haley

 

Was a founder and large shareholder of Cree Inc.  In 2000, his shares alone were worth over $2B...not sure if he sold any or what, but he has deep pockets and sometimes you need strategic partners like that.

 

http://www.sec.gov/Archives/edgar/data/895419/000089541900000018/0000895419-00-000018-0001.txt

 

http://www.bizjournals.com/triangle/stories/2003/06/23/story2.html?page=all

 

3)  We did too, but I think it was more to benefit long-term shareholders rather than raise significant capital for the company.

 

4)  It's 5M authorized, but it doesn't mean they will issue all of that stock anytime soon.  Simply so that if they do need the capital they can raise it.

 

In terms of dilution...it's kind of moot at this point.  There is very little equity and the company is still running up losses, so you are completely betting on them being able to execute on their strategy to expand the Hooters brand and develop cash flow to compensate for the current stock price.  Will be hard in the near term, but may work out well over the long-term.  The main thing is that they've finally got their hands on HOA and the ability to develop the brand.  They've also got strategic partners with very deep pockets who believe in what they are doing.  It's not a value investment...it's a bet on Mike Pruitt, plain and simple!  Cheers!

[rkbabang]

I just took a look at my fidelity account and almost had a heart attack.  My investment in Chanticleer Holdings has increased 497518.94% and is now worth over $76Million!

 

Unfortunately Fidelity seems to be the only place on the web quoting CCLR at $9999.999 per share.

 

I of course took a snapshot of the page.  It's not everyday I can look at a high 8-figure brokerage account balance with my name on it.

 

--Eric

[dcollon]

Sell it...quickly :)

[rkbabang]

Sell it...quickly :)

 

Sure. You want to buy it?  I'm not greedy, I'll sell it all to you for only $5000 per share! That's half off!  You'll be buying 50¢ dollars!

 

--Eric

 

[Parsad]

MPIC Fund I, LP was worth over $1.1 billion!  I plan on running a proxy against Biglari Holdings with our new found capital.  ;D 

 

I actually sent Mike Pruitt a screen shot.  Something to aspire to...$25K a share!  Cheers!

[rkbabang]

MPIC Fund I, LP was worth over $1.1 billion!  I plan on running a proxy against Biglari Holdings with our new found capital.  ;D 

I actually sent Mike Pruitt a screen shot.  Something to aspire to...$25K a share!  Cheers!

 

Congratulations!  Let us know when EnhanceBiglariHoldings.com goes live.

 

As soon as I can cash out of CCLR I'll buy 100K shares of BH to help get you on the board.

 

--Eric