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Ex-enemies ally in burger wars

Checkers Drive-In Restaurants Inc. has agreed to merge with another chain of double-drive-through hamburger restaurants, Rally's Hamburgers Inc.

The merger of Clearwater-based Checkers and Louisville, Ky.-based Rally's, both founded in the mid-1980s, is a combination of equals. As a reflection of that, each chain will keep its own name after the merger is complete.

A combination of the two chains is seen as a way to cut costs as Rally's and Checkers fight the three burger giants _ McDonald's, Burger King and Wendy's _ for market share.

Despite anticipated savings, Joseph Stein, Checkers' executive vice president, said he doesn't expect layoffs as a result of the merger. Checkers' headquarters has gone through a series of layoffs; 32 of the company's 170 corporate staffers lost their jobs in January.

The chains also intend to retain both corporate headquarters locations, Stein said.

Both Rally's and Checkers operate burger restaurants that focus on low prices, a limited menu and fast service. Each chain has nearly 500 restaurants _ about half franchise, half company-owned. And each chain has been hit hard by price wars with the big burger chains.

Under the merger plan, Rally's would become a wholly owned subsidiary of Checkers. One share of Rally's stock will be converted into three Checkers shares when the merger is completed this year. The deal is valued at about $113.5-million in stock.

The new entity will total 949 fast-food restaurants in the Southeast and Midwest. Last year, Checkers had revenues of $165-million, while Rally's posted revenues of $162.8-million.

Despite their similarities, the two chains have few overlapping markets. Checkers operates primarily in the Southeast, while Rally's is mostly in the Midwest.

But one difference in the chains is their recent financial performance. Rally's recently posted its fourth consecutive quarterly profit, reversing three years of losses. But at Checkers, financial troubles continue. In 1996, the company reported a loss of $46.4-million.

The merger is expected to boost Checkers' long-awaited turnaround, said Stein. "It will help us with media and purchasing efficiencies," he said. "And we'll eliminate duplicate public company costs and corporate expenses."

Stein declined to comment on possible management changes, saying it was premature for such discussions.

In mid-1994, the two chains, then archrivals, agreed to swap stores and not compete in the same areas. Rally's 471 units are in Kentucky, Ohio, Indiana, Virginia and Georgia, while Checkers' 478 restaurants are concentrated in the Southeast.

A big investor in both Rally's and Checkers is CKE Restaurants Inc. of Anaheim, Calif., which owns the West Coast-based Carl's Jr. fast-food chain.

CKE has about an 18 percent interest in Rally's, two seats on its board of directors plus an operating agreement to run 27 Rally's locations on the West Coast. In November, CKE bought much of Checkers' outstanding debt. In addition, CKE has a 10 percent equity interest in Checkers plus two board seats.

While it is unclear what role CKE will play in the merged entity, a CKE representative said it supports the plan. "We're looking at the merger as something that's beneficial to both companies and ultimately beneficial to CKE," said Suzanne Brown, CKE spokeswoman.

Checkers shares rose about 5 cents to $1.84] before trading was halted in the afternoon. Rally's trading also was halted, with its shares closing at $3.43}, up 6\ cents.