Pizza Pizza partners fall out over slice of the pie

Mr. Austin had a heart attack in 1995 and he decided to pursue a new business in Florida called Access America Financial. He alleges Mr. Overs agreed to the idea and became a joint owner in Access America, which specialized in providing credit to the "sub-prime borrower."…Access America ran into financial trouble and filed for bankruptcy in 2001, but emerged as a call centre.

The Globe and Mail
June 19, 2006

Pizza Pizza partners fall out over slice of the pie
Lawsuit filed over ownership in wake of chain's income trust conversion
Paul Waldie and Andy Hoffman

PizzaPizza%20logo.jpg

Lorn Austin and Michael Overs have been close friends and business partners for more than 30 years. Together they built Pizza Pizza Ltd. into one of the largest pizza chains in Canada with 501 restaurants.

For years, the two men were a formidable team. Mr. Overs was the quiet company founder who remained largely in the background while Mr. Austin served as the public face of Pizza Pizza, taking on franchise holders and pushing the company into new areas. Mr. Overs and Mr. Austin were so close that they went into other businesses together, basing many of their dealings on a handshake.

The two friends have now had a bitter falling out. Mr. Austin is suing Mr. Overs and Pizza Pizza, alleging they breached a 1996 deal to give him partial ownership of the company. In court filings, Mr. Austin, 56, says he had a heart attack in 1995 and claims his friend took advantage of his vulnerability.

Mr. Overs and Pizza Pizza deny the allegations and filed a motion to have the case dismissed. In a recent ruling, an Ontario judge threw out parts of Mr. Austin's suit but allowed his claim for a stake in the company to proceed to trial.

Pizza Pizza went public last July and, under the terms of that transaction, the company's trademarks and rights were sold to Pizza Pizza Royalty Income Fund for $231.9-million. The income trust then sold units to investors, raising $168-million in net proceeds. Mr. Austin is suing for $45-million in damages and alleges he is entitled to a big slice of the $231.9-million.

Company executives insist the suit will have no impact on the value or operations of the fund, which derives income from a 6-per-cent levy on store sales. The fund itself, they point out, is not a defendant in the suit. Curt Feltner, Pizza Pizza's chief financial officer, said Mr. Overs will personally indemnify Pizza Pizza and the fund against any potential losses from the suit. "Michael has signed the indemnification agreement, our board has reviewed this issue, and we will defend it vigorously," he said.

He added that he has been with Pizza Pizza for 13 years and worked with Mr. Austin for about three years. "He's a gentlemen and a bright guy," Mr. Feltner said.

Mr. Overs and Mr. Austin first met in 1972. Mr. Overs had launched Pizza Pizza five years earlier and Mr. Austin worked as a franchise consultant. According to court filings, Mr. Austin left the firm in 1975 because it was not big enough to support both men. Although he remained outside the firm until 1989, Mr. Austin said in his filings that he and Mr. Overs kept in contact.

During his absence, Mr. Austin moved to Florida, where he ran into legal trouble that resulted in a criminal conviction and three years in prison. He returned to Toronto in 1989 and sold Mr. Overs on the idea of selling "tear off" advertising attached to the tops of its pizza boxes, according to court filings. The two soon established a separate business and Mr. Austin became an executive vice-president at Pizza Pizza. They eventually teamed up on other ventures, according to court filings, including launching "Metropolis," a newspaper delivered on pizza boxes; organizing a delivery system for Swiss Chalet restaurants, and starting a sports marketing business for race cars.

According to court filings, Mr. Austin had a heart attack in 1995 and he decided to pursue a new business in Florida called Access America Financial. He alleges Mr. Overs agreed to the idea and became a joint owner in Access America, which specialized in providing credit to the "sub-prime borrower."

Mr. Austin alleges that he and Mr. Overs met in February, 1996, to divide the ownership of Pizza Pizza. They signed a short, handwritten agreement that valued the company at $70-million and indicated that Mr. Austin was entitled to a significant stake based on a formula. All of their other business interests would be owned equally and Mr. Austin was to receive $375,000 annually, according to the agreement which was filed in court.

In his filings, Mr. Austin said he moved to Florida and concentrated on Access America, but remained a consultant to Pizza Pizza. He alleges he received no further compensation from the firm and relied on the agreement as confirmation of his ownership stake. Access America ran into financial trouble and filed for bankruptcy in 2001, but emerged as a call centre.

Mr. Austin alleges that around 2002, Mr. Overs began considering taking Pizza Pizza public. Mr. Austin alleges he suggested the income trust vehicle and Mr. Overs agreed to consider it. By May, 2005, Mr. Austin alleges he learned Mr. Overs had begun the process of converting the firm into an income trust. Mr. Overs "refused to provide Austin with his entitlement to a share of the proceeds of this transaction, as contracted for [in the agreement]," the suit alleges. The company went public in June, 2005, and six months later, Mr. Austin sued.

The company noted the possibility of legal action by Mr. Austin in its prospectus. "Mr. Overs has received a letter from a former consultant to the company, in which that individual asserts a right to receive a portion of the proceeds of this offering that may be directly or indirectly received by Mr. Overs," the document disclosed. The prospectus said the company and Mr. Overs believed the demand was "based on a lapsed statement of principles with Mr. Overs for a potential arranger's fee relating to the possibility of a sale of the company in 1996."

Even if Mr. Austin is successful and awarded the full extent of his claim, analysts appear unconcerned. Only two analysts cover the fund and both rate it a "buy."

"I'm not worried," said Chris Rankin, of Canaccord Adams.


Risks: Lorn Austin, Lorne Austin, Lawrence Austin, Convicted fraud artist, Predatory lending, Sub-prime lending, Bankruptcies, several, Check kiting, Income trusts, Initial public offering, IPO, Portrait of a franchisor, Franchise consultant, Call centre, Canada, 20060619 Pizza Pizza

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License