07 April 2011

Mid-market US restaurants on investor menu

The largest global deal of April 2011 so far came from France where Vodafone announced it has agreed to sell a 44 per cent stake in domestic mobile service provider Société Française de Radiotéléphone to Vivendi for around USD 11,316 million, according to Zephyr, the M&A database.

However, it was the US restaurant sector which provided an interesting, if small, M&A diversion. Two seafood chains are squaring up for what could end up being a prolonged takeover battle, if things do not go according to plan. At the beginning of this week the founder and chief executive of Landry's Restaurants’ revealed he is keen to take McCormick & Schmick’s Seafood Restaurants private for around USD 137 million in cash.

Investors bid up the US casual dining company’s stocks by as much as 31 per cent to an intra-day high of USD 9.35 on 4th April on news Tilman Fertitta is planning to hook shareholders with an offer of USD 9.25 per share, but the Oregon-based eatery did not comment on the announcement, merely claiming Fertitta has not formally tendered his offer and, until he does the board of directors will not respond his press release.

Fertitta, who is already a major shareholder in upscale seafood restaurant operator McCormick & Schmick’s with a 10 per cent stake, intends to make his proposal through LSRI Holdings, a subsidiary of Landry's Restaurants. He is no stranger to leading extended takeovers, battling for years to take his seafood company private and out of the control of shareholder Pershing Square Capital. He finally succeeded in October 2010, paying USD 629 million to acquire the remaining 45 per cent he did not already own.

News of the possible takeover comes less than three weeks after US upscale steakhouse chain operator Morton's Restaurant revealed it is hoping an improved financial performance may smoke out interested buyers. The company noted an increase in business travel and convention attendance boosted sales over the past 12 months, with revenues rising to USD 296 million in fiscal 2010 from USD 281 million a year earlier. It also turned a net profit, of USD 2 million after incurring two consecutive annual losses. Morton's has hired Jefferies & Company to help evaluate strategic options. The decision, which includes reviewing a possible corporate sale, is being supported by the group’s two largest stockholders, private equity firm Castle Harlan and venture capital player Laurel Crown Partners.

It remains to be seen how the restaurant industry will cope with the increase in food prices; will chains pass higher commodity costs down to customers or will there be more consolidation in the sector against a decline in consumer footfall?

© Zephyr