Posted By: John Steele
By Caroline Humer
NEW YORK (Reuters) - OSI Restaurant Partners Inc. (NYSE:OSI - news),
owner of the Outback Steakhouse chain, on Monday said it
planned to go private in a $3.04 billion buyout that includes
its founders and private equity firms Bain Capital Partners and
Catterton Partners.
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The company, whose restaurant chains have struggled as
customers cut back on spending in the wake of higher gasoline
prices, said it would consider better offers.
The deal values the company at $40 per share, a 23.3
percent premium over Friday's closing price, and sent OSI stock
up to that level.
"We didn't have anything that really compared to this
offer," OSI Chief Executive Bill Allen said in an interview.
OSI also disclosed more details of a previously announced
financial restatement, increasing the estimated size of its
liability for understated revenue.
The decision to accept the offer from the private equity
firms and company founders Chris Sullivan, Robert Basham and J.
Timothy Gannon came after OSI hired Wachovia Securities in
April to study its options. It also follows pressure from
activist fund Pirate Capital to break up the company.
"While gasoline prices and home heating prices are better,
there are significant reasons to think that this down cycle
will continue for a period of time," Allen said.
Shares of OSI gained $7.41, or 22.9 percent, to $39.84 in
afternoon New York Stock Exchange trade after rising as high as
$40.50. It hit a four-year low of $27.30 on July 31.
"It's been a difficult operating environment and the
company's stock performance certainly highlights that," said
Johnson Rice & Co. restaurant analyst Mark Sheridan.
Private equity investors have a different tolerance level,
Sheridan said, allowing a company to restructure and make
operational improvements over a longer time frame.
BRAND IMPROVEMENT
OSI will need another 18 to 24 months to work on improving
its core brand, CEO Allen said. The company intends to follow
through on plans stated this summer to slow expansion to 100
restaurants in 2007, he said, and it will stick by its decision
to keep the chains that Pirate had pushed it to spin off,
including Carrabba's Italian Grill and Bonefish Grill.
OSI said its board had approved the deal and recommended it
to shareholders, based on the unanimous approval of a special
committee of independent directors.
The committee and its advisers will solicit superior
proposals -- in what is known as a "go-shop" provision -- from
other parties in the next 50 days. Such provisions have become
standard as management-led buyouts have soared this year with
the increase in funding available from private equity firms.
Another bidder, perhaps a different private equity firm,
may come forward, according to one trader.
"With all the money that's currently around from private
investors and with a bid on the table from Bain Capital, the
expectations are that there's going to be at least some other
people looking at the deal," said Michael James, senior trader
at regional investment bank Wedbush Morgan in Los Angeles.
Both Bain and Catterton already have restaurant
investments, including Bain's stakes in Domino's Pizza Inc.
(NYSE:DPZ - news), Burger King Corp. (NYSE:BKC - news) and Dunkin Brands, the
parent company of Dunkin Donuts.
Catterton was an investor in Baja Fresh and P.F. Changs
China Bistro Inc. and now backs the Starwood Hotels & Resorts
Worldwide Inc. (NYSE:HOT - news) restaurant venture with chef Jean-George
Vongerichten along with Cheddar's Holding Corp.
Including assumed debt, OSI Restaurant said the deal was
worth about $3.2 billion. The company expects the transaction
to close before the end of April.
RESTATEMENT
OSI said it would restate results, and previously issued
financial statements were no longer reliable.
The company had said in October it was delaying the release
of its third-quarter results because of the restatement, which
will correct a previously announced understatement in its
liability for unearned revenue on unredeemed gift cards.
In October, it said it had tentatively determined it had
understated its liability for unearned revenue for unredeemed
gift cards and certificates by $20 million to $40 million.
It now expects to record an adjustment to its unearned
revenue liability of about $50 million to $70 million at
September 30.
(With reporting by Chelsea Emery in New York, Dilipp S. Nag
in Bangalore and Jessica Wohl in Chicago)
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