Steakhouses: Buyouts and bankruptcy

Steakhouses are too feeling the pinch of the recession.

Sept. 9: Landry's Restaurants Inc. has engaged Moelis & Company LLC as its financial adviser to assist its board of directors, and a special committee of independent directors, in reviewing strategic alternatives including a possible sale and a proposal from chief executive Tilman Fertitta to take the company private.

Landry's CEO tries buyout again: Landry's Restaurants Inc. said Wednesday that it is exploring strategic alternatives, including a sale, and reviewing a proposal from chief executive Tilman Fertitta to take the company private. - Donna Block

Aug. 24: Metromedia Steakhouses' plate set for confirmation: Metromedia Steakhouses Co. LP is angling to emerge from bankruptcy in the fall now that its reorganization plan has been sent to creditors for a vote. Under the plan, nonbankrupt parent Metromedia Co., owned by billionaire John Kluge, would provide three loans: A $9.3 million loan that would replace MSC's prepetition term loan and revolver (bought by Metromedia before MSC's bankruptcy); a $5.84 million exit financing that would pay off the debtor-in-possession loan supplied by Metromedia; and a $4.68 million revolver described as a working capital line. - Ben Fidler

July 21: The Kansas City, Mo. restaurant company Hitchin Post Steak Co. filed for Chapter 11 on July 21. It listed assets and debt of $1 million to $10 million.

May 18: OSI Restaurants posts gain: Tampa, Fla.-based OSI Restaurant Partners Inc., the parent of the Outback Steakhouse chain posted a steep rise in quarterly earnings due to a one-time buyback of distressed debt. - David Carey   

This, after: Feb. 24: Outback chain posts deeper losses; and March 11: Outback seeks advice from AlixPartners LLP.

April 29: Steakhouse Buffets exits with $304M on its plate: The company lines up $117.5 million in first-lien financing and $186.8 million in second-lien financing from Credit Suisse. - Jamie Mason

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ARG Enterprises Inc., which runs 69 Black Angus Steakhouse restaurants in seven states in the West, flamed out Jan. 15. It was a Chapter 22 for the company, as American Restaurant Group Inc. filed for bankruptcy in 2004, emerging the following year.

Update: April 2: Black Angus Steakhouse sold: The buyers are a pair of Versa Capital Management Inc. subsidiaries. - Kevin Fung 

Meanwhile, Landry's Restaurant Inc., the casual dining chain that in 2007 tried and failed to acquire the iconic steakhouse chain Smith & Wollensky Restaurant Group Inc., scrapped plans for its take-private, which its CEO Tilman Fertitta was leading, to preserve a plan to refinance some of its notes. The take-private price had been reworked down to $13.50 per share, from $21, a bid unveiled in April, which the company accepted June 16, and that was itself lowered from an original $23.50 per share bid made in January. Market conditions and the damage Hurricane Ike left in its wake were credited for the price cuts.

Back in October 2008, Metromedia Steakhouses Co. LP, the parent of the Ponderosa and Bonanza buffet chains, filed for bankruptcy. But the filing only affects about 50 Ponderosa locations and none of the Bonanza restaurants, as The Deal's Ben Fidler explained.

Landry's completed its go-shop period with no other offers, it said Aug. 1, and planned to proceed with its then-$1.3 billion buyout. Four lenders are contributing to the deal for the Houston-based company, whose restaurants include the Rainforest Cafe and Vic & Anthony's Steakhouse: Jefferies Funding LLC, Jefferies & Co., Jefferies Finance LLC and Wells Fargo Foothill Inc., The Deal's Demitri Diakantonis reported. Landry's in April tapped Cowen & Co. LLC to advise it. 

OVERDONE

Meanwhile, several steakhouse chains are too suffering the same pains felt throughout the restaurant industry: bankruptcy.

• S&A Restaurant Corp., the parent of casual dining chain Bennigan's Grill & Tavern, Steak & Ale Restaurant and several other brands, filed for Chapter 7 liquidation July 29. Those owned by franchisees are not part of the filing, however, the restaurant group said in a statement.
  
• Florida steakhouse chain Sam Seltzer's Steak Houses of America Inc. filed for protection June 27, unable to service debt after a fast expansion.
  
• San Diego restaurant group Steakhouse Partners Inc. filed for bankruptcy May 15 for the second time in six years. The company was subject to a bankruptcy warning April 4.
  
• On May 14, a Florida judge converted Roadhouse Grill Inc.'s Chapter 11 into a Chapter 7 against its wishes after the company failed to secure an extension to pay its leases. The company went through a reorganization in 2002 and came out of bankruptcy before its restaurants suffered a series of hurricanes in 2004.

Eagan, Minn.-based Buffets Inc., the largest steak buffet chain in the U.S., sought Chapter 11 protection in January to restructure its debt after missing payments. It exited Chapter 11 in April 2009.

CUTTING THE FAT

Meanwhile, in February, Columbus, Ohio-based Cameron Mitchell Restaurants LLC sold four affiliates (Mitchell's Fish Market, Columbus Fish Market, Cameron's Steakhouse and Mitchell's Steakhouse) in February's to Ruth's Chris Steak House for nearly $94 million, Diakantonis wrote.

Also in February, Sydney-based private equity firm Pacific Equity Partners put the Sizzler steakhouse chain up for sale and hired Houlihan Lokey Howard & Zukin to hunt down a buyer, a statement said Feb. 8. The Sydney-based firm took Sizzler private in 2005, acquiring it from Worldwide Restaurant Concepts Inc., and said it expected to sell the chain within six months.

Back in October 2007, Del Frisco's Restaurant Group LLC filed for an initial public offering worth up to $100 million, which would offer Lone Star Funds some liquidity. Del Frisco operates 22 restaurants in 14 states under the Double Eagle Steak House and Sullivan's Steakhouse chains. The chains were part of Lone Star Steakhouse Inc., which Lone Star Funds acquired in December 2006, at which time they were split from the downmarket Lone Star chain. Del Frisco's has yet to float.

CHOWING DOWN

Adding red meat to its menu of seafood and Italian, Darden Restaurants Inc. said Aug. 16, 2007 it would acquire Capital Grille and LongHorn Steakhouse parent Rare Hospitality Inc. in a $1.4 billion deal. The offer enabled Darden to add the two steak houses to its portfolio -- which includes the Red Lobster and Olive Garden chains -- and at $38.15 per share, the bid carries a rich, 39% premium to the target's close a day earlier, proving once again, there is demand for choice beef. The next month Darden entered into two new credit agreements to help finance the $1.4 billion acquisition with Bank of American NA serving as lead arranger for loans totaling $1.9 billion. Unlike other steak house buyouts, the Darden deal didn't turn into a long, bloody battle.

The deal came nearly two months after Bain Capital Partners LLC and Catterton Management Co. LLC took the parent of Outback Steakhouse private in a $3.5 billion, or $41.15 per share deal. Six months after reaching a $40 per share, $3 billion-plus deal for OSI Restaurant Partners Inc., the bid group was forced in May to better its offer by $1.15 per share to appease stakeholders hungering for a juicier return. It was just one example at the time in which shareholder activism led to a bump in the buyout price and marked the then-latest development on the steak house buyout front, where investors were actively biting.

Meanwhile, shareholders at Smith & Wollensky officially ended a messy bidding war on Aug. 20 when they approved a $95 million deal with Patina Restaurant Group LLC. The battle began in March, when Landry's bettered by 50 cents a share an agreed-to $9.25 a share buyout proposal from Patina and its own, $7.50 a share offer launched in January. The bidding caused Smith & Wollensky's stock price to nearly double, from nearly $5 a share in January to $9.76 Friday afternoon, March 16, when Landry's came forward with a juicier bid. The new offer equated to nearly $84 million, or $9.75 a share. In May, Smith & Wollensky amended its agreement with Patina, which bumped the offer price to $11 per share and assigned its rights and obligations under the agreement to a bid group that included Nick Valenti, Joachim Splichal and Bunker Hill Capital LP. 

Lone Star Funds raised its agreed-upon offer for Lone Star Steakhouse by nearly $5 million on Nov. 30, 2006, to $605 million. The modest price increase, some say, wasn't a move to appease shareholders who've called the buyout price too low, but instead a move to buy management more time to garner support for what looks to some like a raw deal. A shareholder vote followed on Dec. 12, and the deal gained approval after months of back and forth. So, what was that beef all about?

FANNING THE FLAMES

Hedge fund Barington Capital Group LP, with 9.4% of Wichita, Kan.-based Lone Star Steakhouse came out guns blazing Oct. 31, 2006, with a letter to the restaurant chain against the company's pending buyout. Lone Star retaliated with a letter of its own Nov. 7 in defense of the sale, but the debate marked the second time the hedge fund publicly aired its grievances with the company in as many months.

Barington, which first took a stake in Lone Star in May 2006, asserted that the $27.10 per share acquisition price undervalued the company, its real estate assets and upscale restaurant brands, in particular. The buyout shop then upped its offer by 25 cents per share.

• Lone Star runs a chain of 200-plus middle-grade steak houses, 20 premium and 20 lower-grade restaurants. The company didn't have its real estate appraised ahead of the Aug. 18, 2006, deal, which Barington said it believed to be closer to $400 million than the $245 million the company said it paid for the assets, many acquired in the 1990s.
  • One source told The Deal's Dave Shabelman that a valuation of more than $400 million would be conservative for Lone Star's real estate and called the company's whole auction process as outlined in a proxy filing "bizarre."
  • The chain posted $669.3 million in revenue in 2005, and another source told The Deal's Kelly Holman the company generates roughly $50 million in trailing Ebitda.
• Barington, too, questioned the thoroughness of the auction in its letter, citing Lone Star's admission of only considering six potential bidders. In its letter, Nov. 7, 2006, Lone Star said, however, that the sale process was "fair" and the purchase price exceeded its financial advisers' valuation of the company.
• Lone Star Funds originally considered an offer between $30.50 and $31 a share, or $675 million to $686 million, proxy details show, but the completion of due diligence and deterioration in the target's earnings drove it south.

ALL SAUCED UP

Meanwhile, other hungry dealmakers rounded out 2006 with a spate of activity.

• On Nov. 6, 2006, OSI first agreed to a $40 a share buyout from Bain, Catterton and its founders.
• Bruckmann, Rosser, Sherrill & Co. LLC, Canyon Capital Advisers LLC and Black Canyon Capital LLC sunk their teeth into Nashville, Tenn., steakhouse chain Logan's Roadhouse Inc. with a $486 million buyout from CBRL Group Inc., Cracker Barrell's parent, which was announced Oct. 31, 2006.
• And upscale steak chain Morton's Restaurant Group Inc., backed by Castle Harlan Inc. and Laurel Crown Capital LLC, dazzled in its February 2006 initial public offering, with shares pricing at $17, above their $14 to $16 range, debuting at $20 and raising $161 million. Shares are now trading down below $7.
  

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