Chuck E. Cheese Already Triggers a Buyout

That was quick. Just a week after reports surfaced that family dining chain CEC Entertainment (NYSE: CEC  ) was looking for someone to take it private, Apollo Global Management (NYSE: APO  ) has stepped forward with a $950 million offer plus the assumption of some $370 million worth of debt, for a total value of around $1.3 billion.

The $54-a-share bid represents a 25% premium over where CEC's stock closed before Reuters reported the company was exploring a potential sale and was working with Goldman Sachs to find a buyer. Apparently the investment house has a ready list of such buyers on its tickler file.

CEC operates the 567-restaurant Chuck E. Cheese chain that offers an arcade-like mix of food along with games of chance, rides, and play areas. It's struggled in recent periods to compete against other forms of entertainment in an economically challenged environment. During its last quarterly earnings conference call, management noted that kid-centric movies far eclipsed its popularity. Coupled with virtually all dining concepts experiencing trouble attracting customers, it's not surprising CEC saw same-store sales fall 2.1% amid an 11% drop in birthday party sales.

The tough environment has led to a lot of activity in the restaurant space, including activist investors pressuring Bob Evans Farms and Darden Restaurants to sell, spin off, or otherwise separate themselves from various business units, and Ruby Tuesday hanging up a shingle saying it was looking for a buyer.

Apollo Global itself was likely looking to replace the Carl's Jr. and Hardees chains that it sold to private equity peer Roark Capital last November. Apollo sold the burger chains' parent CKE for approximately $1.7 billion. 

CEC, which also announced today it had adopted a shareholder rights plan with a 10% trigger, has been reviewing its strategic options, and Apollo's offer includes a go-shop period through the end of the month that allows CEC to solicit superior bids from other parties.

According to a New York Times review of the deal, the buyout is the fifth-largest leveraged restaurant buyout of all time, falling just behind Burger King Worldwide (twice), Outback Steakhouse's OSI Partners, and Dunkin' Brands. Two companies have had a hand in the top 10, Apollo and Bain Capital, and private equity is already among the biggest holders of CEC stock, including Wellington Management, FMR, and BlackRock.

The fast sale shows there is still an appetite for compelling restaurant ideas, and the premium offered should give hope to other chains looking to unload a brand or two. 

A cheesy opportunity
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2798215, ~/Articles/ArticleHandler.aspx, 12/21/2014 9:36:52 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement