GIORDANO’S: Are Franchise Owners Sabotaging Sale?

Chicago pizza franchise company Giordano’s is in bankruptcy… and is for sale.

Giordano’s franchisees have pooled enough money to put in a bid of $30 million to buy the assets of their franchisor.

The bankruptcy trustee in charge of the sale claims that since there are other bidders willing to bid higher, the Giordano’s franchisees are intentionally trying to discourage other bidders with bad behavior, such as not paying royalties and using non-approved ingredients.

According to the Wall Street Journal,  Giordano’s bankruptcy trustee Philip Martino is suing most of the restaurant’s franchise owners for conspiring to block the company’s sale to outside buyers.  According to the Journal article:

Many franchise owners have stopped making royalty payments and have even started cooking with rogue ingredients that don’t conform to the pizza chain’s standards, jeopardizing its reputation and hindering the broader efforts to successfully reorganize the company, according to the lawsuit that Martino filed Wednesday with the U.S. Bankruptcy Court in Chicago.

“The Giordano’s franchise system is a valuable asset that cannot be sold for full value while the franchisee dispute is still pending,” according to the lawsuit, which asks a bankruptcy judge to force the group’s cooperation.

The lawsuit demands that franchise owners start making royalty payments again, which funnel about $2 million annually toward the company, formally Giordano’s Enterprises Inc. It also requests that franchisees cook with the proper ingredients they agreed to use in their franchise agreements, which enable them to use secret Giordano’s recipes and trademarks.

Giordano’s operates six company-owned stores, four joint-venture stores, and 35 franchise locations. The company employed about 330 workers.

About 30 Giordano franchisees are represented by Chicago attorney Chester Foster Jr.

The company filed for bankruptcy protection on February 16, 2011, claiming it owed $45.7 million, mostly to lender Fifth Third Bank.

Giordano’s owners John and Eva Apostolou, who purchased Giordano’s in 1988, were removed from control when Martino was appointed trustee.

Martino claims the company operates profitably, earning at least $1.2 million in operating profits during the first four months of its restructuring, and that it will attract a sale price in excess of what the franchisees are offering.

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