Secret agreement kills Landry's Restaurants buyout

Jan 13, 2009 5:09 PM
by Ray Poirier | Tilman Fertitta’s attempts to emulate his gaming company cousins and take his company private tripped over a regulatory filing on Monday, thus killing the deal that many had considered a done deal.

From the very beginning, when the economy was on a roll and Fertitta, CEO of Landry’s Restaurants Inc. (LNY), made his initial offer of $23.50 a share, the buyout had its detractors. But Fertitta appeared to have the backing of Jefferies & Co. for the necessary funding.

Also, Fertitta owned nearly 40% of the company’s outstanding shares which placed him in a solid position to go forward with the takeover. Even when the company’s directors dragged their feet before responding to the initial offer and the economy soured, Fertitta was able to lower his offer to $13.50 a share.

But, throughout the negotiations, Jefferies & Co., and its partners, including Wells Fargo Foothill, insisted that certain financing information remain confidential.

That didn’t sit well with the Securities & Exchange Commission. They ordered that the information be made available to the stockholders and the general public.

Jefferies & Co. refused, thus forcing Landry’s Restaurants directors to call off the sale to Fertitta.

Included in the deal was a commitment to refinance Landry’s $400 million in senior notes. Jefferies & Co. and their partners were the lead lenders in the deal. The lenders warned that if the confidential information were made public, the refinancing arrangement would be terminated.

"Given the current economic environment and the company’s need to refinance its existing approximately $400 million in senior note, the Company informed Fertitta that the company was not prepared to risk losing its alternative financing commitment and was therefore unable to comply with a condition of the merger agreement which required distribution of an SEC approved proxy statement to company shareholders to vote on the adoption of the merger proposal," the company said in a statement.

Both Fertitta and company agreed that due to the foregoing, it was in everyone’s best interest to terminate the sales agreement with neither side required to pay damages to the other.

Traders reacted swiftly Monday, reducing the share price by some 33% to $8.30 from Friday’s price of $12.35.