June 16, 2008 / 2:14 PM / 11 years ago

UPDATE 2-Landry's CEO to buy company for $1.3 bln

(Recasts; adds details, background, analysts’ comments)

By Anne Pallivathuckal

BANGALORE, June 16 (Reuters) - Landry’s Restaurants LNY.N agreed to be bought by Chief Executive Tilman Fertitta for about $1.3 billion, including debt, almost six months after he made his initial offer for the restaurant-chain operator, but left the door open for opposing bids from third parties.

Fertitta will pay $21.00 a share in cash, about 25 percent more than the stock’s Friday closing price of $16.79. The deal value of $1.3 billion includes about $885.0 million of debt.

Landry’s shares, which have lost almost half their value over the past year, surged 20 percent to touch a high of $20.15 Monday.

The deal represents a triumph for Fertitta over skeptics who had doubted his ability to secure funding for the deal as the credit crunch squeezed debt markets.

The 50-year-old Fertitta, whose cousins Frank and Lorenzo Fertitta took Las Vegas casino operator Station Casinos private in a management-led buyout last year, had in January offered to buy Landry’s for $23.50 a share.

But in April Fertitta, who has been with the company for more than two decades and owns about 39 percent of Landry’s, cut his offer price to $21 a share as credit market conditions worsened, making it far more costly to obtain the debt financing needed for the deal.

But Landry’s on Monday said Fertitta, whose offer values the stock at about 16 times forward earnings, has received debt financing commitments from Jefferies Funding LLC, Jefferies & Co Inc, Jefferies Finance LLC and Wells Fargo Foothill LLC to fund the acquisition.

The company, which competes with Texas Roadhouse (TXRH.O), CBRL Group Inc (CBRL.O), and larger rivals DineEquity Inc (DIN.N) and Darden Restaurants (DRI.N), said the deal is expected to be completed in about four months, during which time it will stop payment of its regular quarterly dividend of 5 cents per share.

Landry’s, which operates the iconic Golden Nugget Hotel & Casino in Las Vegas and several casual-dining outlets, said a special committee will solicit other acquisition proposals from third parties for about 45 days following the signing of the merger agreement.

SMH Capital analyst William Hamilton said he expects the deal with Fertitta to go through since the board has approved the deal with the funding. An employee of SMH Capital is a director of Landry’s Restaurants.

There have been no other bidders for the restaurant-chain operator since Fertitta’s initial offer in January and Hamilton said he didn’t anticipate another bidder emerging as the current economic environment and credit markets make it difficult to raise capital.

Hamilton also drew attention to the fact that Fertitta owns 39 percent of Landry’s, giving him an edge over other potential suitors.

The analyst said Fertitta’s offer appears to be the best for the company, whose shares have seen a slide from a high of $32.30 last July as consumers reign in spending amid rising fuel prices, uncertainty in the credit markets and a weakening economy.

The company was also hurt by creditors demanding early repayment of a $400 million bond issue, before it finally agreed in August last year to reinstate the 7.5 percent senior notes, increasing the interest rate to 9.5 percent.

Under the agreement, at 18 months, the company would have an option to redeem the bonds or for the noteholders an option to call the bonds.

If the buyout is successful, the bonds will be refinanced as part of the deal, Standard & Poor’s credit analyst Charles Pinson-Rose said. Standard & Poor’s Ratings Services has a ‘B’ corporate credit rating on Landry’s and on CreditWatch with negative implications.

Shares of the Houston, Texas-based company were trading up $2.91 at $19.70 Monday afternoon on the New York Stock Exchange. (Editing by Pratish Narayanan)

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