Struggling chain considers a sale

Under pressure from disgruntled shareholders, Friendly Ice Cream Corp., the Wilbraham chain known for its sandwiches and sundaes, said yesterday it is considering putting the 72-year-old company up for sale.

Friendly's new chief executive George Condos , formerly of Dunkin' Donuts, also laid out plans yesterday to help revive the beleaguered brand, such as updating the menu to include more contemporary sandwiches, cold beverages, and other healthy options, modernizing the restaurants, and putting a premium on quick service.

"We need to reposition and energize the Friendly's brand," Condos said.

Until recently, Friendly's stock has been moribund, too. Only once this decade has the stock flirted with the $18 price range of its 1997 initial public offering, but otherwise has been long depressed. A proxy battle from a dissident shareholder coupled with yesterday's development have been a tonic to the stock price; yesterday shares jumped 16.47 percent to close at $13.79, the highest since June 2004.

Friendly's directors said in a statement they have hired investment bank Goldman Sachs & Co., to assist the "board in exploring strategic alternatives to enhance shareholder value," including a possible sale.

Meantime, on Tuesday Sardar Biglari , one of the firm's largest stockholders, sent a letter to other shareholders outlining his strategy to shake up the chain if he and business partner, Philip L. Cooley, win the two directors seats up for election at the company's annual meeting in May. He said the firm needs to convert more company-owned stores to franchises and curb executive compensation.

Biglari declined to comment beyond the letter. Friendly has not responded to Biglari's most recent letter. Directors had previously offered Biglari and Cooley two seats on the board, but the pair rejected the offer because they did not like conditions the board had attached.

Friendly has been mired in controversy for several years. In 2003, co founder S. Prestley Blake , filed a lawsuit against Friendly and company executives that accused chairman Donald Smith of misusing company funds. The suit is pending. Blake, who founded the neighborhood ice cream shop with his brother during the Great Depression, still has a 12 percent stake in the public company.

Blake's attorney, James C. Donnelly , said the move to put the company up for sale is an effort by Friendly's board of directors to thwart dissident shareholders.

"It sends the message that the board would rather sell the company quickly than face the stockholders. And it is inconsistent with decisions made as recently as three months ago when they hired a new chief executive," Donnelly said. Condos was appointed chief executive in January and awarded a base salary of $475,000 this year. If Condos is terminated for any reason other than cause, the company will offer one year base salary in severance, according to his contract.

Friendly's board has not set a timetable for when it intends to decide on the company's future. Condos said he is focusing on turning around the brand.

Restaurant analysts said Friendly's, which has more than 500 restaurants, mostly in the Northeast, has struggled to stay relevant, as it faces pressure from rival casual dining eateries and ice cream shops, such as Cold Stone Creamery.

"Friendly's hasn't created or executed a strategy to get itself out of its doldrums, either by revamping the menu or changing the value perception," said Dennis Lombardi , executive vice president of food services strategies at WD Partners in Columbus, Ohio.

Still, analysts say Friendly could be an attractive turnaround buy for private equity firms. In 2006, 100 US public companies went private via buyouts, more than double the 45 of the previous year.

Alternately, with its numerous suburban locations, Friendly might be of interest to other retail food companies looking for real estate in the Northeast, where it is very difficult to get sites.

The company also reported fourth-quarter earnings yesterday, netting a profit of $136,000, compared with a loss of $30.2 million a year earlier and $4.9 million for the full-year, compared with a loss of $27.3 million the previous year.

Jenn Abelson can be reached at abelson@globe.com.