If you overpay for shares of Lone Star Steakhouse
The problem? Lone Star shareholders will be voting on an offer next week to swallow the company whole at $27.35 a share. Obviously, the folks buying in at these prices feel that a buyout battle is looming. Fueling that fire was yesterday's announcement that last week's vote was adjourned until Dec. 12, as the Dallas-based Lone Star Funds group that agreed to buy the company over the summer for $27.10 a pop had upped the ante by a quarter.
Was the bid raised due to lukewarm shareholder response? Is a higher rival bid in the cards? Is this the start of a bidding war, with Lone Star Steakhouse investors hooting and tooting all the way to the bank?
I don't think so. For starters, let's review the facts here. At $27.35, Lone Star is getting bought out at 32 times this year's earnings. That's a premium to the 25 times 2006 earnings that OSI agreed to be acquired at last month. Since the original offer, Lone Star went on to report a staggering 9.4% decline in fiscal third-quarter comps.
Lone Star is a restaurateur with a lumpy operating history. Who wants in? Over the past few months, CBRL Group
Investors who may have confused the buyout offer as being from an insider group (it's not) or thought the company's real estate alone was worth $400 million (burst much?) are cruising for a bruising. The carnage may be limited to cashing out at $27.35 a share, but it can always get worse if the deal falls through.
Lone Star's stock closed at $23.55 the day before the buyout offer. Since then, crippling comps and sharply reduced profit forecasts have only crumbled the already iffy fundamentals. If there is a better bid out there, great. If not, look out below.
A company like CircuitCity
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Longtime Fool contributor Rick Munarriz has been to several casual steakhouses, including a pair of visits to Lone Star. He does own shares in CBRL Group. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.