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Big Mac Attack

McDonald's unveiled plans late last year to haul away Colorado-based Boston Chicken and use what's left of the struggling company for firewood, in a cash deal worth about $175 million. A federal court overseeing bankruptcy proceedings for the chain approved the deal yesterday.

Big Mac is about to put the big smack-down on Boston Chicken. And Ronald McDonald looks a lot like "Chainsaw Al" with floppy shoes and a side order of nuggets right about now. How in the heck did we get here? And what ever happened to finger lickin' good!?

Pull up a chair, and sit a spell. Here's a fun fable for investors who've never heard of the riches to rags story that took place long before Al Gore ever invented the Internet.

Way back in the winter of 1993, a funny little restaurant chain decided to hit the new issues market and shake the IPO money tree with a revolutionary new idea. There was more than its share of hyperbole surrounding the offering, and when it opened at 10 bucks a pop, shares soared to nearly $25.

Now here's a little footnote - 150% gains back then were about as common as a solar eclipse. It was something to get excited about, and it sure hogged the water-cooler chat. It caused such a stir on Main Street because everyday people were familiar with the product, and most folks just love get-rich-quick stories.

For consumers tired of the same ol' burgers and fries, Boston Chicken was marketed to soccer moms everywhere as the healthy fast-food alternative. And the same folks who feasted on yummy roasted chicken and country cookin' were the same retail investors who placed that call to their brokers and pushed the stock all the way up past $40.

This phenomenon was like a train rolling downhill, and the company's underwriters were greasing the wheels. Lucrative underwriting deals were the order of the day, and brokers lined their pockets with the windfall. Merrill and Morgan Stanley shook their pom-poms and hoodwinked investors to stay put.

Only problem was, Boston Chicken was expanding faster than the love bug virus, and this chicken ate cash. Lots of it. To the tune of $1.5 billion to finance more than 1,200 franchisees nationwide. And, the company cooked its books to hide some early signs of trouble that suggested the numbers didn't support its hyper-expansion plans.

But investment banks turned a blind eye to it and busied themselves finding additional buyers for the convertible bonds, while padding their bottom line with more underwriting fees. By mid-1997, Joe Investor was left holding the bag...as usual.

Amidst much-publicized finger-pointing and no shortage of duck-and-cover, investors tarred and feathered Boston Chicken, running the restaurant chain out of town. Shares plummeted, and President and CEO Larry Zwain got the boot. Swimming in a billion dollars worth of debt, Boston Chicken headed for Chapter 11.

That's where we left our hero, until McDonalds rode up looking for a good deal. And by the looks of it, the burger chain got one. Not for the chicken, but the real estate. Boston Chicken still runs 850 restaurants in 33 states. It's the old adage: bad business, good dirt. And Mickey D's wants to replace many of the existing outlets with pizzerias and spicy food.

As expected, the deal leaves bond and shareholders with nothing and even gives most creditors the shaft. Today, the penny stock is a day trader special at just $0.07, and the story behind this once-highflying Wall Street darling serves as a cautionary tale.

All in all, McDonald's got a whopper of a deal, and the little people were left with a nothing burger...as usual.

Any questions or comments, love letters or hate mail? As always, feel free to forward them to kblack@internet.com.