TAMPA Fla. For the second time in two weeks, Outback Steakhouse parent OSI Restaurant Partners Inc. has postponed a special shareholder meeting to solicit more votes on the proposed $3.2 billion buyout of the company, leaving the casual restaurant operator’s future uncertain. An announcement late Monday night pushed back the meeting scheduled to begin 11 a.m. on Tuesday to May 22.
Last week, after the company's first postponement, reports indicated that shareholders may be holding out for a higher buyout offer or for a continued stake in the new company.
OSI did not return calls seeking comment. In both the May 9 and May 14 statements, the company said it had postponed the shareholder vote “to permit the solicitation of additional votes.”
The would-be buyers, private-equity firms Bain Capital Partners LLC and Catterton Management Company LLC, said Friday in a regulatory filing that they would give the company and shareholders more time to approve the transaction. According to the filing, Bain and Catterton will not exercise their termination rights surrounding the deal until May 24. Originally, the companies could have terminated the deal May 10. The private-equity companies also said they would not “provide any notice” of their decision prior to May 17, the filing revealed.
Approval of the buyout, which also is led by Outback’s founders and certain members of senior management, requires the affirmative vote of a majority of the company’s outstanding shares. Yet, the buyout agreement also requires that the majority approval be obtained without the consideration of the votes of any shares held by OSI founders and the members of management participating in transaction. According to data on Yahoo Finance, OSI insiders hold about 11 percent of the company’s outstanding shares.
In the time leading up the new meeting on Tuesday, sources said OSI would continue to solicit shareholders to vote for the transaction, especially as a shareholder’s failure to vote in any way is in effect a vote against the deal, according to OSI proxy materials.
OSI’s general counsel, Joe Kadow, sent a letter on Thursday to OSI employees across all of the company’s eight brands, encouraging any shareholders to vote on the pending deal. In the letter, filed with regulators Friday, Kadow told employees that restricted stock owners can vote, as well as holders of OSI stock through 401(K) plans.
The $40-per-share buyout bid had garnered criticism since it was first announced in November from some investors and analysts who said the price is too low and the process, which did not include a public auction, favored OSI’s founders and management.
According to proxy advisor Institutional Shareholder Services, which suggested shareholders vote for the buyout proposal, the $40 per share price is 9.5 times the restaurant company’s earnings before interest, taxes, depreciation and amortization, or EBITDA, which it said was “in line with comparable [deals].”
Still, some restaurant buyouts, especially those on the scale of OSI, have been garnered multiples of 10 times EBITDA or higher.
As for the sale process, OSI said in its proxy materials that it used a 50-day period after the buyout proposal was announced to entertain additional proposals. The company “had contact with 18 potential purchasers, none of whom indicated that they would be interested in making a proposal to acquire OSI at a price in excess of $40 per share,” the proxy materials said.
Some pundits have said shareholders could be holding out for a higher offer, although others said that was an unlikely scenario. Also possible is an offer from the would-be buyers to allow shareholders to retain a stake in the newly private company, reports indicated. The use of a sweetened offer allowing shareholders a certain stake in the new company is a buyout technique that has gained traction of late in the merger market.
Kohlberg Kravis Roberts and the private-equity arm of Goldman Sachs recently made an $8 billion bid to purchase Harman International, the maker of high-end speakers and home theatre systems, and in a very obvious concession to shareholders that were against the transaction, the would-be buyers offered stakeholders in Harman a chance to retain up to 27 percent of the new private company. The deal was approved.
Asimilar move was suggested, although not used, in the buyout of Clear Channel Communications. The two buyers, Bain Capital and Thomas H. Lee Partner offered shareholders a chance to retain a stake as a way to sweeten its proposed $26 billion offer. The buyout price was eventually raised to $27.6 billion.
The postponement of OSI’s shareholder meeting also created some havoc in the bond market, also according to reports. The company’s $550 million in bonds that were sold in late April have been canceled, according to a report in the Wall Street Journal, and all the trades that had taken place in that issue also were canceled. The bonds had been trading for two weeks, but nothing was set to settle until Wednesday, a day after the company’s scheduled shareholder meeting and the expected buyout approval.
The bonds were to help finance the $3.2 billion buyout and were underwritten by Bank of America and Deutsche Bank.
The developments put OSI’s credit rating from Standard & Poor’s in play, according to New York based S&P.
“Should shareholders fail to approve the company’s sale, lower debt levels could lead to improved credit metrics and a higher rating,” S&P’s credit analyst Jackie E. Oberoi said in a statement. “Conversely, should a higher sale price be financed with additional debt, increased leverage could result in a downgrade.”