Mr. Smith: In the last year or so, we've had a lot of private equity sniffing around the restaurant industry. Either private equity takes somebody out or a hedge fund tries to get the companies to do something with their cash flow that enhances their near-term valuations.
TWST: Why? Is this such a good cash flow business?
Mr. Smith: Yes, when the companies are mature, they are basically cash cows.
TWST: Have they had any success doing that?
Mr. Smith: They have. Dave & Busters went private in a private equity
transaction, as did Lone Star Steakhouse. Outback Steakhouse is going private,
and there were a couple of others that I don't follow that went private. Then
you have companies like Cracker Barrel that have done large Dutch auctions.
Applebee's (APPB) is currently being bothered by Breeden Capital, a hedge fund,
to try to get them to change the business plan that would give them access to a
lot of cash to buy stock back. Brinker (EAT) actually did a Dutch auction, but
it only acquired about 10% of the shares that they wanted. Sonic (SONC) has also
done a Dutch auction. So there has been a lot of activity on that front.
Tickers included in this excerpt: APPB, BJRI, CAKE, CHUX, MSSR, OSI, PFCB, PNRA
For more information call (212) 952 7433. The Wall Street Transcript does not endorse any of the comments made by interviewees, and does not make stock recommendations.