OSI: A Farewell Toast

And with out further ado, a farewell toast to Outback Steakhouse and its parent company OSI Restaurant Partners (NYSE: OSI  ) , as it prepares to go walkabout from the Big Board.

Monday's earnings release should be the restaurant chain's last quarterly report to its investors. While the release confirms the difficulties OSI continues to face, it also affirms that the waiting period is officially over for competing bids to take the company private, cementing the standing offer of $40 per share from a private equity consortium led by Bain Capital Partners. (The transaction should be completed by the end of April.)

For the quarterly results, our Fool by Numbers service breaks down the numbers. The negative trend in comparable same-store sales continues to hamper the restaurant chain, driving the restaurant's falling profitability and poor share performance. The lack of people eating at Outback Steakhouse restaurants is leveraging the company's fixed costs across fewer Melbourne porterhouse steaks and Kookaburra Wings.

Diners weren't only turning up their noses at Bloomin' Onions; it was a rough summer for most of the major restaurant chains as well. And while share prices from the restaurant chains have generally recovered since August, the Bain Capital-led private equity group took advantage of OSI's depressed price, making an offer the board didn't refuse.

This confluence of events allowed the private equity consortium to take control of the company on the cheap. To verify, this Fool decided to compare the buyout price with recent competing firms' enterprise-to-EBITDA multiples.

Company

EV/EBITDA

OSI Restaurant Partners

9.1

Applebee's (NYSE: APPB  )

9.0

Darden Restaurants (NYSE: DRI  )

8.2

Ruby Tuesday (NYSE: RI  )

8.2

Brinker International (NYSE: EAT  )

7.3



It looks like the board received a premium for its shareholders, but only a slim one. The multiple disguises the restaurant chain's depressed operating income. OSI had been earning more than 10% in operating margins for many years, up through 2002. If the company still earned 10% operating margins, based on trailing-12-month revenue, OSI's potential EV/EBITDA multiple would drop to 6.1.

This potential multiple will only be coaxed out of OSI with the right turnaround plan, public or private. However, it does show what kind of potential profits the private equity group could generate if it successfully regains profitability, then takes the company public at the same nine-times multiple it originally paid.

Farewell, OSI. Bain Capital and company, I wish you the best. And to the existing shareholders, let's raise a toast to what could have been.

Crikey! Look at all this further Foolishness:

OSI Restaurant Partners is a Motley Fool Inside Value recommendation. Clearly, The Motley Fool wasn't the only one to see value in the restaurant operator. Discover more Wall Street bargains with a free 30-day trial subscription.

Fool contributor Matthew Crews welcomes your feedback -- really! He has no financial position in any of the companies mentioned. The Motley Fool has a disclosure policy.


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