This Week in Food and Restaurants
by Aristotle Munarriz (TMF Edible)

Miami, FL (July 3, 1997) -- A Cable Car named desire? It was for TRIARC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRY)") else Response.Write("(NYSE: TRY)") end if %> who made a bid for the upstart bottler last week. The problem for shareholders of CABLE CAR BEVERAGE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DRNK)") else Response.Write("(Nasdaq: DRNK)") end if %> was that the offer was below the market price. Oh, and that the two largest Cable Car shareholders have already signed off on the deal. Sella! Sell-ahhhh!

While Cable Car stockholders may be visibly upset, from a distance, this might prove to be in their best interest. A little background on Cable Car is probably in order. They are a small company. While they have interests in everything from Aspen water to flavored seltzers, the bulk of their sales, and hence the object of Triarc's affection, is Stewart's Root Beer.

While distribution of Stewart's may be sparse in most retail grocery chains it is the star of restaurant menus. The root beer is featured prominently at places like CRACKER BARREL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CBRL)") else Response.Write("(Nasdaq: CBRL)") end if %> and Hard Rock Cafe. They have capitalized on the success to bring out not only diet versions but also more exotic offerings like Orange N' Cream, Key Lime and Cherries & Cream sodas.

Then again, I did say Cable Car is a small company. They outsource the production and even the Stewart's name is not theirs. They were able to get the license, now worldwide, from the Northeastern Stewart's burger chain, where the root beer first garnered its following.

So Triarc, a beverage heavy after adding Snapple and Mistic to their RC Cola label, came calling. Of course, most associate Triarc with the Arby's chain and a stock on a recent tear after doubling earlier this year. They are offering 0.1722 shares of their stock for each share of Cable Car.

As it goes with arbitrage, the shares of Cable Car are selling at a slight discount to the actual value of 0.1722 shares of Triarc. While Cable Car closed at $3 3/32 today its value is actually $3.40 based on Triarc's close of $19 3/4. While the deal should be consummated over the next two months, it is an arbitrage dream. By going long on shares of Cable Car and shorting the equivalent amount of Triarc they are locking in on the 10% difference. Not too bad for an almost sure bet of a double-digit gain in two-three months time.

Of course, this is not for me. It is probably not for you either. You have to buy in volume to offset the commission costs and the spreads involved in the hedge. I also used the word almost since the deal can fall through. Yet that is unlikely since the government will probably not have a problem with a bottler whose RC Cola is a distant third to COCA COLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %> and PEPSI <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PEP)") else Response.Write("(NYSE: PEP)") end if %> picking up a niche player like Cable Car. And with Cable Car's management pledging their 20% stake in the company in favor of the deal, it would mean that 63% of the other shares would have to vote against the takeunder.

But is it a takeunder? Cable Car shares had been trading for as little as a buck just three years ago. The recent rise was in part due to buyout speculation. Ever since Coke bought Barq's Cable Car shareholders have been enamored by the list of possible suitors. But since Cable Car is a special situation, where their only real strength is the earnings power of a license acquired from Stewart's, it appears to have been fairly valued given their relatively asset-free shell existence. Because, quite simply, while the growth was amazing, and well above the P/E of 20 the stock was fetching, its valuation was held back by being nothing more than a small office collecting royalties from their outsourcing efforts.

Yet if all the pieces fall into place you are going to have the exciting Stewart's product line, not only bottled for less, but with the huge distribution channels which Triarc has carved our for its other brands. that is when Stewart's will truly break out of obscurity. And, for Triarc, whose purchase earlier this year of Snapple for pennies on the dollar of what QUAKER OATS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OAT)") else Response.Write("(NYSE: OAT)") end if %> originally paid is now followed by the shrewd purchase of Cable Car, it might certainly be a company worth looking into.

And, for Cable Car shareholders, you're already in it. . . and at a decent discount too.

THE EDIBLE EIGHT

Start spreading the news... RAINFOREST CAFE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RAIN)") else Response.Write("(Nasdaq: RAIN)") end if %> is now slated to take up residency at 4 Times Square sometime next year. Well, spread the news, because so far, the only one speaking is the building landlord, who has leaked word of the new tenant to New York City media.

The Conde Nast building will be a towering 48 stories of offices, across the street from where the ball drops every year. Rainforest Cafe, according to the published report, will have 4,000 square feet on the first floor and another 17,000 below. Will the subway system there now have a Rainforest Cafe station? Nope. Still, not only will the restaurant be at ground level of one of the most pedestrian-heavy intersections anywhere, it will also be below 47 floors of hungry office workers.

That is the good news. The bad news is that over the first three days of this young month the Edible Eight has only edged 0.1% higher. Nothing major. A significant drop in APPLE SOUTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APSO)") else Response.Write("(Nasdaq: APSO)") end if %> on no material news has sandbagged the early performance.

Next week, Apple North! Yes, North! Up! Mush! Mush! Well, if not then the chain will only be that much cheaper than the 12 times next year's earnings it is presently selling for. For a company that has landed three major coups this year in picking up a trio of young exciting dining concepts at reasonable price tag they certainly deserve better. So, we will wave our flags, celebrate independence, and hope someone lights a firecracker under the E8's feet.

1997 Returns To Date:

S&P 500 +23.8%

NASDAQ +13.7%

Fidelity Sel:Food +8.8%

The Edible Eight +7.5%

IBD's Restaurants -0.1% (as of Monday)

The July Edible Eight

Return from July 1 to July 3

Rainforest Cafe <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RAIN)") else Response.Write("(Nasdaq: RAIN)") end if %> -1.0%

Apple South <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APSO)") else Response.Write("(Nasdaq: APSO)") end if %> -8.1%

Rock Bottom Rest. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BREW)") else Response.Write("(Nasdaq: BREW)") end if %> 0.0%

Bertucci's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BERT)") else Response.Write("(Nasdaq: BERT)") end if %> 0.9%

Quality Dining <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QDIN)") else Response.Write("(Nasdaq: QDIN)") end if %> 9.3%

Coca Cola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %> ***short*** -3.9%

Garden Fresh <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LTUS)") else Response.Write("(Nasdaq: LTUS)") end if %> -5.3%

Koo Koo Roo <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KKRO)") else Response.Write("(Nasdaq: KKRO)") end if %> ***short*** 8.4%

Until next week, Digest Foolishly,
Rick Munarriz (MF Edible)

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