Monday, January 12, 2009

No mas! No mas!

The business week is barely underway, but it's already shaping up to be a stinker. The early bad news includes the bombshell that Landry's is backing out of a long-awaited buyout by founder and CEO Tilman Fertitta because the backers don't want details of the financing arrangement revealed to shareholders, as the SEC is demanding. Then there's Ruth's Chris' disclosure that fourth-quarter same-store sales dropped 18.5%. And, just to put that last smiley face on the morning's restaurant headlines, there's a full-fledged food-safety crisis involving peanut butter sold by one supplier to foodservice operators in at least 42 states.

The Landry's situation is by the far the real startler. The deal has had more ups and downs than a roller coaster at one of the company's amusement complexes. Now, with the going-private process in the home stretch, the buyout is called off, for reasons that are murky at best.

As an announcement cryptically recounts, the SEC ordered that the terms between buyer, seller and the deal's financial backers be released to shareholders. Landry's said it informed the agency that the agreements prohibit the disclosure of that proprietary information. The SEC responded in essence with, "Too bad. Tell your shareholders all the specifics."

If Landry's decided to comply with the SEC's directive, the funding might've been pulled in retribution. But, even worse for the company, the lenders could back out of a stipulation that they refinance $400 million in notes. Landry's would lose its suitor and a chance to lighten a crippling debt burden. The most responsible choice, the company argued in a press release, was to terminate the buyout. That way it wouldn't have to issue a proxy to shareholders. The disclosures demanded by the SEC would not have be made, the financiers would be appeased, and the refinancing could continue.

The big mystery, of course, is what the lenders--several Jefferies & Co. and Wells Fargo affiliates--did not want revealed. Barring a new John Grisham novel, we may never find out.

Perhaps Fertitta should shift his attention to buying out Ruth's Chris instead.

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