Landry’s founder on the reasons behind his $137.3M buyout offer for the upscale seafood company
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Ron Ruggless
Editor's note: This story has been updated from a previous version.
Tilman J. Fertitta, who made a $137.3 million buyout offer Monday for the 96-unit McCormick & Schmick’s Seafood Restaurants Inc., said the upscale restaurant company was ripe for a turnaround.
Fertitta and LSRI Holdings Inc., a subsidiary of Houston-based Landry’s Restaurants Inc., offered $9.25 a share for McCormick & Schmick’s, which represented a 30-percent premium of the company’s closing price of $7.21 on Friday. McCormick & Schmick’s stock price jumped more than 29 percent Monday after Fertitta’s offer, closing at $9.22 per share.
McCormick & Schmick’s released a statement Tuesday that said it “did not solicit such an offer and has had no discussions with Mr. Fertitta concerning it. If the offer is formally made, the McCormick & Schmick's board of directors will respond appropriately in accordance with its fiduciary duties. The board has made no decision at this point whether to initiate or enter into discussions with Mr. Fertitta or any other party or to consider any sale or other strategic transaction concerning the company.”
Fertitta, the founder and chief executive of Landry’s, which he took private in a $1.4 billion deal last year, has been on a buying spree. Last year, Landry’s bought the 12-unit Oceanaire Seafood Room and 45-unit Claim Jumper concepts in bankruptcy court deals and purchased the 32-unit Bubba Gump Shrimp Co.
On Monday afternoon, he spoke with Nation’s Restaurant News about his latest buyout offer.
“What I’m finding attractive about [McCormick & Schmick’s] right now is that it’s a turnaround,” Fertitta said. “They’ve hit the wall as all higher-end [dining] companies do. … They are upscale seafood. They’re no different than a Morton’s or Ruth’s Chris.
“When you get past about 50 or 60 units, there aren’t enough urban locations to do large business,” he added.
Fertitta owns 10.1 percent of all common shares of McCormick & Schmick’s, which operates 96 restaurants including its namesake upscale seafood chain and The Boathouse brand in Canada.
Landry’s has such upscale seafood concepts as Chart House, Landry’s Seafood and Oceanaire in its portfolio, Fertitta explained, which would allow for rolling in another.
Fertitta likened the McCormick & Schmick’s bid to his Oceanaire bankruptcy-court acquisition last year. Oceanaire had shrunk from 18 restaurants to 12 locations when Landry’s purchased it, and Fertitta said McCormick & Schmick’s is also due to be downsized.
“We’d have to get rid of all the bad stores, which there are quite a few of,” he said. “And then we open up one at the right location when you can find it. You can’t be under the gun as a public company being a McCormick & Schmick's and say I’m going to go open up 10 percent units a year.”
Fertitta added that the upscale restaurant company had a “huge need of a lot of adjustments: menu, facilities that have huge deferred maintenance.”
“They are a total fix-em-up,” he said.
For the fourth quarter ended Dec. 29, McCormick & Schmick’s posted a loss of $25.1 million, or $1.69 per share, compared with a net loss of $16.6 million, or $1.12 per share, in the same quarter a year ago. Same-store sales dropped 1.0 percent for the quarter on revenues that increased 3.4 percent to $91.6 million.
In a conference call in March, executives at McCormick & Schmick’s outlined improvements in store for the company, including a multiyear remodeling program, management changes, training improvements and an upgraded back-of-the-house system.
Bart Glenn, vice president and senior research analyst with D.A. Davidson & Co. of Lake Oswego, Ore., said in a research note that McCormick & Schmick’s “has struggled to participate in the upscale-dining recovery.”
“Landry’s portfolio of seafood brands would provide a unique opportunity to potentially rebrand some of [McCormick & Schmick’s] units that no longer have sufficient brand equity,” Glenn said.
Fertitta declined to predict a timetable for a possible deal with McCormick & Schmick’s.
“What we would hope is that they sit down and negotiate a price with us,” he said. “In that price, their bankers will have a ‘go-shop’ and if somebody feels like they can make the deal better for them, we want what’s best for the McCormick & Schmick’s shareholders.”
CORRECTION: A previous version of the story credited a research note to "Adam Krasovec, a securities analyst with D.A. Davidson Research." The research note came from Bart Glenn, vice president and senior research analyst with D.A. Davidson & Co.
Contact Ron Ruggless at [email protected].
