Two weeks ago, The Dallas Morning News ran an Associated Press story in which it was announced that Lone Star Steakhouse & Saloon Inc.--which is, oddly, enough, based out of Wichita, Kansas--was being sold to the Dallas-based private-equity firm Lone Star Funds. ("There is no affiliation between Lone Star Steakhouse & Saloon, Inc. and Lone Star Funds other than the proposed transaction," says here. "The name similarity is a coincidence.") The going price was $27.10 a share, for a total of $610 million (and another $99 million worth of debt). Today, there's a story in the Kansas City Star that says, in essence: Not so fast.
First off, you know Lone Star Steakhouse, probably very well. It operates 265 restaurants across the country under five different monikers, including Sullivan's, Del Frisco's Double Eagle Steak House and Texas Land & Cattle. Big company. Says here that according to Securities and Exchange Commission filings this week, Jamie Coulter, the founder and CEO of Lone Star Steakhouse & Saloon Inc., stands to make more than $80 million from the sale all by hisself.
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But yesterday, the Manhattan-based Barington Capital Group, L.P., which owns about 9.4% of Lone Star Steakhouse's stock, issued a press release in which it complained that the $27.10-per-share sale price "fails to provide adequate value to the Company's stockholders." Barrington thinks Lone Star Steakhouse is letting Lone Star Funds have the chain at too cheap a price; it claims shares can be and will be as much as $32 a share in the next 12 month, according to information provided by outside analysts. Said Barrington chairman and CEO James A. Mitarotonda in that release: "We intend to thoroughly review the transaction and all alternatives available to the Company. While we are reserving for now our ultimate judgment on the transaction, we do not believe that the Company's valuable assets and brands are being sold for a price that reflects the intrinsic value of the Company."
So, why is Lone Star Steakhouse selling off such a recognizable and valuable chain in the first place? Says the Star today:
"In the preliminary proxy statement, Lone Star Steakhouse's directors supported the offer by citing a list of problems bedeviling the company. Among the problems:
�Continued decline in certain earnings measurements.
�The effect of higher gas prices and higher interest rates on casual dining.
�High beef prices and reduced availability of beef partly because of mad cow disease.
�The spread of "living wage" ordinances that push local minimum wages above the federal minimum.
�Steak appearing on many other casual dining restaurants' menus.
�Continued deterioration of the Lone Star Steakhouse concept."
Oh, and if the name Lone Star Funds sounds familiar to readers of Unfair Park, it's because, yeah, that's the same company that got into all that trouble with the South Korean government earlier this year. The latest news on that front: Well, Lone Star Funds, which is the biggest foreign investor in South Korea, said earlier this week that if Korean prosecutors don't wrap up their investigation by a September 16 deadline, Lone Star will likely kill its $7.2 billion sale of Korea Exchange Bank. Why am I suddenly craving Korean barbecue? --Robert Wilonsky