Taking Out the Landry's

There's home cooking on the menu at Landry's Restaurants (NYSE: LNY  ) . The company that started as a casual-dining seafood chain before taking on a motley crew of properties. including Rainforest Cafe and the Golden Nugget casinos, might be going private.

CEO Tilman Fertitta is advising the Landry's board of his interest in acquiring the company for $23.50 a share. The all-cash deal represents a 41% premium to where the stock closed on Friday.

The stock soared on the news yesterday, but investors aren't convinced. The buyout still represents a 15% premium to last night's close, suggesting that Fertitta's proposal is far from being a done deal.

Mr. Market is even less confident that a bidding war will break out. That's a pity, because given Landry's eclectic portfolio, one would think that recent buyout activity in both the casual dining and gaming sectors would attract interest in snapping up Landry's piecemeal, if not whole.

Obviously IHOP (NYSE: IHP  ) won't jump at Landry's, because it just swallowed Applebee's. The private equity firms that have moved to acquire Station Casinos, Harrah's, and Penn National Gaming (Nasdaq: PENN  ) in recent months won't necessarily do cartwheels for the Golden Nugget.

Seeking a suitor and finding one are two different things. Just ask Wendy's (NYSE: WEN  ) how long she's been lining up potential gentleman callers. Companies like Build-A-Bear Workshop (NYSE: BBW  ) have been exploring "strategic alternatives" for ages.

However, Fertitta's offer appears genuine. He already owns 39% of the company, so it's not as if it's an outsider that will have to pay off all the shares before taking on the company's debt (which at nearly $900 million is more than double the company's market cap). Yes, debt is a major part of any Landry's acquisition, but that is also the reason why the board should jump at Fertitta's offer.

After last month's credit downgrade from Moody's, investors have a right to be nervous. The company had to refinance with its creditors, bumping up the rate on its senior notes by 200 basis points. In a nutshell, the move is tacking on an extra $8 million in annual interest expense to the company's operations. If we're heading into uncertain times, the last thing investors need is uncertain companies with bigger tabs to pay.

As long as Fertitta can secure the financing, it doesn't make sense to deny Fertitta the right to a little home cooking. It's an exit strategy at a time when few are coming in.

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