Chain Leader

David Farkas

Tilman's Takeout
January 29, 2008

"It's a difficult market for funding leveraged transactions," he noted.

And not just any transaction. This one involves $1.3  billion and Landry's CEO Tilman Fertitta, who's attempting to take Landry's private. (The comment belongs to Mark Churchill of Piper Jaffray and appears in today's Houston Chronicle story about the bid.) 

Fertitta, who's already owns 39 percent of his company's equity, presumably believes Landry's is worth more than its current share price -- a sum that has traveled between $32 and $14 in the past 52 weeks. As of this afternoon, shares were changing hands for $19.70 apiece, well below Fertitta's $23.50 offer. 

Of  course, there's no guarantee the wily executive, who has a knack for negotiating good deals (witness the Golden Nugget), will get his way, though it is tempting to consider buying a boat load of the stock. After all, $1.3 billion is a lot of dough to raise given the climate. Fertitta, however, has assured the board financing isn't a problem, promising he has the backers.   

He also has believers. Analyst William Hamilton of SMH Capital, for example, wrote:

Given the real estate, we believe a competing offer is possible from a private equity firm, which could look to do a sale-leaseback. That said, we would speculate that CEO Fertitta is prepared to raise his offer should a counter bid emerge. Mr. Fertitta has advantages that favor his eventual victory in this transaction. First, his 39% ownership stake, which was boosted after last year’s buybacks, certainly gives him a nice head start. Second, the current turmoil in the credit markets has substantially raised the cost of capital, so his timing seems right. Finally, LNY’s balance sheet, as noted above, is already quite leveraged, which hampers a competing offer from using debt to take the company private. A private equity firm would have to put substantial equity into the deal.

Equity that would have also have to fund $900 million in company debt and an interest rate that recently climbed 200 basis points on Landry's senior notes after a painful refinancing. Churchill is dead on; it's an difficult time for leveraged transactions -- unless like Fertitta you already own a third of the company and know there aren't suitors in the wings.

Correction: In Chain Leader's February's cover story, "Enviromental Defense," I made an error. I said Saladworks franchised 18 units. I was off by a mile. There are 89 franchised units. Humble apologies.

Posted by David Farkas on January 29, 2008 | Comments (0)