I hate to say goodbye to a great brand like Outback Steakhouse (NYSE:OSI).
No, the restaurants aren't going away, but the stock ticker is about to fade into the Australian wilderness. Never again will these pages be graced with clever puns about bloomin' onions or Kookaburra wings. Not to mention shrimp-on-the-barbie, my all-time favorite fusion of food preparation with popular culture.
Last week, the company made what is likely to be its final sales release before succumbing to the tender embrace of private equity, via a $3.2 billion deal with Bain Capital and Catterton Partners. Shareholders will be voting on the deal May 8.
The quarterly results were about as expected, with systemwide comparable restaurant sales down at four out of five restaurant brands, ranging from a 0.5% dip at the flagship Outback Steakhouses to a 2.1% loss at Roy's. Only the Fleming Prime Steakhouses managed positive comp sales at 3.1%. Note, though, that the Fleming brand makes up only 50 restaurants out of the chain's total system of 1,440 eateries.
What we're seeing is a continuation of soft comparable sales for Outback Steakhouse. Perhaps for this final public sales release, the company should have adapted its famous tagline "No Rules ... Just Right" to "No Sales ... Just Going Private." I admit that's a bit unfair for a restaurant chain with a long and successful history. But recent sales trends, along with margin and expense pressure, are the key reasons why the company is going private in the first place. Like several other established casual-dining chains -- Lone Star Steakhouse and Logan's Roadhouse most recently -- Outback Steakhouse appears to have hit the wall. Its board has rightly looked for a way to generate value for shareholders, while giving management time to right the ship.
Not that shareholders are making out like bandits in the deal that the board struck. The offer price of $40 per share is a 24% premium over where the shares traded the day before the deal was announced. But compared with stock-price highs during 2005 and early 2006 in the mid $40s, this is no feast for shareholders. I accept Matthew Crews' analysis of the deal based on the enterprise-to-EBITDA multiple, which pegged the $40 price at the upper end of a reasonable range compared with Applebee's (NASDAQ:APPB), Darden Restaurants (NYSE:DRI), Ruby Tuesday (NYSE:RI), and Brinker International (NYSE:EAT).
Regardless of whether the investment community thinks the offer is fair, it appears to be moving toward a rapid consummation. Last week, the company announced that it had agreed to settle two shareholder lawsuits over the terms of the agreement, to avoid further "burden, expense, risk, inconvenience, and distraction." I'm impressed -- that's five hardships in a single sentence. As part of the settlement, Bain and Catterton agreed to waive a portion of their maximum $45 million termination fee should the deal fall apart.
I wish the new owners well with Outback. They should be able to make this work. I don't see this brand as played out -- there's a lot of potential left in fare from down under, although once a restaurant chain gets caught up in negative comp sales, it does take some heavy lifting to get caught up. Who knows? Perhaps in a few years, a retooled Outback Steakhouse will be ready for another walkabout in the public domain. Until then -- best of luck, mate.
For more casual-dining adventures, check out:
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Fool contributor Timothy M. Otte surveys the retail scene from Dallas. He welcomes comments on his articles but doesn't own shares of any of the companies mentioned in this article.
