Feuding at Friendly’s

To get through to Prestley Blake , Friendly’s 92-year-old cofounder and one of its most disgruntled shareholders, the company turned to his younger brother.

Two top company executives flew to Florida from the chain’s Wilbraham headquarters to talk with 89-year-old Curtis Blake . Their mission: to prevent Prestley, Friendly’s second-largest stockholder, from joining forces with its top stockholder, a 29-year-old Texas millionaire who wants more control over the restaurant chain.

After meeting with the executives for a few hours at his home, the younger Blake the next morning faxed a handwritten, five-page letter to his older brother. The siblings, who started Friendly’s during the Great Depression, live just 12 miles apart but haven’t spoken to each other in more than a year because of a falling-out over the business. But Curtis broke the silence to protect Friendly’s from what he called “a corporate raider.”

”Our company is now in a very precarious position,” Curtis wrote in January. “You alone are now in the position to control the entire future.”

Never has there been more friction at Friendly Ice Cream Corp. and anxiety over its future. The New England company that made its Fribble milkshake almost as famous as the Big Mac is now saddled with huge debt, dismal customer ratings, and angry shareholders. Just months after naming a new chief executive it plucked from Dunkin’ Donuts, the board recently decided to consider selling the business.

It’s a far cry from the chain’s simple beginning, when, with a tip from a local fuel salesman and $547 from their parents, the Blake brothers started a neighborhood ice cream shop in 1935 as a way to stay out of trouble in Springfield.

The name, Prestley recalls, comes from the brothers being “friendly guys by nature, and we wanted to be super nice to our customers.”

Over the next four decades, the brothers expanded the company to more than 600 restaurants, carving a niche in the market as a family-friendly place serving feel-good ice cream treats. It quickly became a hangout for youths after school, ballgames, and concerts.

Prestley served as the company’s treasurer, overseeing real estate and controlling the finances. Curtis was president. How did they decide their positions?

”On the flip of a coin, which is a lousy way to do it,” Prestley said. “My parents were very anxious for us to have everything being as equal as possible. It never bothered me.”

But by the 1970s, the brothers began to fight over the direction of the business. Curtis thought his brother’s Depression-era spending habits were keeping the company from aggressively competing against rivals. So the brothers settled the dispute in part by agreeing to sell Friendly’s to candy giant Hershey’s Co. in 1979 for $164 million.

Under Hershey’s, Friendly’s grew to more than 800 eateries, the highest number in its history. But the chain began to flounder because of high labor costs and intense competition. That’s when Donald Smith , a veteran restaurant executive, stepped in and bought Friendly’s for $375 million in 1988. He paid far too much for the struggling firm, by most analysts’ estimates, and strapped the company with an enormous debt.

Prestley Blake says he largely blames Smith, who is the company’s chairman, for the chain’s problems.

But some analysts say Friendly’s has long suffered from poor management, declining service, and a complicated menu. In the 2006 Consumer Reports rankings on restaurant chains, Friendly’s came in last in the Family Restaurant category, the only one to receive poor ratings across the board for taste, service, mood, choice, and value.

Smith, who was considered a star in the industry for his success at Burger King and PepsiCo, declined several requests for comments.

Friendly’s went public in 1997, in part to help reduce its debt. Despite efforts to renovate restaurants and cut costs through layoffs and store closures, the company faltered, according to Mark Churchill , an analyst with Piper Jaffray in Minnesota.

As Prestley watched the company’s stock sink, he began buying shares to try to restore confidence in Friendly’s.

”It’s my baby,” he said. “You can’t forget it. When you work so long and hard for a company and had high principles, you can’t let it go.”

In 2003, Prestley filed a lawsuit that accused Smith and executives of self-dealing and misusing company funds, including payments for a corporate jet. Smith later repaid the firm for some jet travel, but Friendly’s denies any wrongdoing. The lawsuit caused the most recent rift between the brothers; Curtis believes that Prestley’s actions hurt the chain.

”My brother forgot we sold the company,” Curtis said. “He used to call Hershey’s regularly and with Smith he did the same thing. My brother never wanted to let go.”

Last year, Prestley, after years of fighting Friendly’s alone, found an unlikely ally in Texas businessman Sardar Biglari , who recently increased his stake to 15 percent, making him Friendly’s largest shareholder. Biglari, an immigrant from Iran and the son of rug dealers, was inspired to start investing at age 19 after reading the book “The Warren Buffett Way.”

Biglari runs an investment company, The Lion Fund L.P. in San Antonio, and serves as chairman of Western Sizzlin Corp., a steak-and-buffet restaurant chain. He said he believes Friendly’s, under the right leadership, has tremendous potential. Since the summer, Biglari has met with Friendly’s biggest shareholders, including Prestley, to gain support for his initiatives.

Last fall, Biglari asked for a seat on the company’s board of directors. Friendly’s agreed but with conditions that he not seek additional seats on the six-person board. Biglari refused, and in a recent letter to shareholders, said he and a business partner are running against two incumbents who are up for reelection at the annual shareholder meeting in May. The day after Biglari released his letter on March 6, Friendly’s said it might put the company up for sale.

”This is a board that has failed,” Biglari said. “They’re unresponsive and have total disregard for their largest stockholder.”

Prestley has not decided how he will vote, but said he agrees with Biglari, who wants to convert more company stores to franchises and cut executive compensation. Prestley recently increased his stake to 13 percent, and continues to fight Friendly’s in court, selling 16 of his 24 Rolls Royces to help pay for the legal bills.

George Condos , Friendly’s new chief executive, said he has met with Biglari and Prestley but declined to comment on the proxy battle. Earlier this month, Condos laid out a vision to fix Friendly’s stores, which now number 514, such as adding more healthful options to the menu, modernizing restaurants, and improving service.

”My role here is around rebuilding and energizing the brand,” Condos said. “Friendly’s is a great iconic brand that over time probably lost focus on what their core is, and now we’re trying to bring that back.”

The one thing both Blake brothers agree on is the sadness they feel that the company they built together has torn them apart.

”I’m sorry my brother isn’t with me on this,” Prestley said, “but I’m going to keep going because I know I’m right. I’m going to keep going until I can’t go any further.”

Said Curtis: “I’m very disappointed. He was my best friend for 85 years. It would have been a nice story if we ended up best friends for our entire life.”

Jenn Abelson can be reached at [e-mail].