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Outbreak News

Outback Steakhouse closes on acquisition of Chi-Chi's restaurants

BRUCE SCHREINER

Associated Press

Wed, Sep. 22, 2004

Kansas City Star

LOUISVILLE, Ky. - Outback Steakhouse Inc. this week closed on its $42.5 million deal for the rights to 76 restaurants in the Chi-Chi's chain, which was beleaguered by bankruptcy and a hepatitis outbreak.

Outback plans to convert many of the restaurants into its own brands - which include its signature Outback Steakhouse, Carrabba's Italian Grills, Bonefish Grills, Fleming's Prime Steakhouse and Wine Bars, Roy's and Cheeseburger in Paradise restaurants.

"We felt it was a good opportunity to acquire a large number of good locations that we can use for our brands," said Joseph Kadow, senior vice president for Outback Steakhouse Inc., based in Tampa, Fla.

Meanwhile, Chi-Chi's - a Mexican restaurant chain based in Louisville - posted a statement on its Web site hinting at its fate.

"We would like to thank all of our loyal customers of the past 27 years and with a tear in our eye, say Adios," the statement said.

A recorded message on Chi-Chi's toll-free guest relations hotline said the chain was no longer in business and apologized for any inconvenience caused by the closure of its restaurants.

The chain's parent, California-based Prandium Inc., declined comment Wednesday on the fate of Chi-Chi's.

Chi-Chi's was left reeling by a hepatitis A outbreak last fall that sickened 660 people who ate at a Pennsylvania restaurant. The outbreak, traced to green onions, killed four. More that 300 victims filed claims seeking damages from the company.

Chi-Chi's filed for Chapter 11 bankruptcy protection a few weeks before the outbreak, due to unrelated cash-flow problems.

Plaintiffs' attorney William Marler said Outback's successful bid for the rights to the Chi-Chi's restaurants would not affect pending cases.

Marler, of Seattle, said about 150 of approximately 325 claims have been settled, with $7 million paid out so far. He said plenty remains in an existing insurance pool to pay off future claims.

"It would be very unlikely that this insurance money is not enough," said Marler, who represents about a third of claimants.

Health officials traced the hepatitis outbreak to Mexican-grown green onions that Chi-Chi's used in salsa and as a garnish on dishes at its Beaver Valley Mall restaurant near Pittsburgh.

By acquiring the rights to the Chi-Chi's restaurants, Outback can convert them into its own brands or sell the properties. The restaurants are in several states, including New Jersey, Pennsylvania, Ohio, Michigan and Wisconsin, Kadow said.

The company hopes to move quickly to put its own name on some stores.

"We're going to move with all deliberate speed, but there may be permitting issues, there's obviously some renovations to be done," Kadow said in a phone interview this week.

Outback also purchased kitchen equipment, furniture and liquor licenses at the properties. The deal did not include Chi-Chi's brand, its restaurant operations or any recipes, Kadow said.

Outback's stock was down 44 cents at $41.10 in late-afternoon trading Wednesday.

More on this outbreak: Chi-Chi's Hepatitis A Outbreak

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