Restaurant Associates Industries Inc. said Monday that it has accepted a cash buyout offer of nearly $90 million from a group of its top executives, apparently derailing Orange County businessman Anwar Soliman's takeover bid of more than $100 million.
In a prepared release, the New York-based restaurant and newsstand company said the management group will launch an $18-per-share cash tender offer Thursday for the 2.1 million outstanding shares of Class A stock and 2.9 million shares of Class B stock not owned by management.
Members of the management group leading the leveraged buyout have agreed to accept $15 per share for their shares. According to the company's last proxy statement, Restaurant Associates' officers and directors owned about 358,000 Class A stock and 1.3 million shares of Class B stock.
The board's acceptance Saturday of the sweetened management offer caps two weeks of rival bidding between Soliman and the management group for control of Restaurant Associates, which operates more than 250 restaurants and 150 newsstands on the East and West coasts. Two weeks ago, the management group offered $14 a share.
Soliman, chairman of American Restaurant Group in Newport Beach, has offered to pay $19 per share for all of Restaurant Associates' stock.
Wall Street reacted enthusiastically to the buyout announcement. Restaurant Associates shares hit record highs and were among the most active issues on the American Exchange on Monday. Class A stock closed at $17.75 per share, up $2.625, while Class B shares closed at $17.75, up $2.375. Nearly 290,000 shares changed hands.
In a prepared statement, Soliman said Monday that he was "surprised and disappointed" by the board's acceptance of the management buyout proposal and that his $19 cash offer to the board remains in effect.
"I'll leave it up to the shareholders to make up their minds," Soliman said in an interview. But he acknowledged that his offer must remain friendly to win board approval. "I never intended and never will be in a position to make a hostile tender offer."
Observers said a hostile offer made directly to shareholders over the objections of management would be the most likely way to keep Soliman's acquisition effort alive.
One source close to Restaurant Associates called Soliman's $19 acquisition offer "fairly soft, or at most, soft to medium," as opposed to a firm, unconditional offer.
In fact, several conditions attached to Soliman's proposal apparently were a major factor in the board's decision to reject his offer, company sources said.
"We never heard anything that was entirely convincing about how he expected to implement the transaction," said New York attorney Kurt Koegler, who represents a special three-member committee of Restaurant Associates directors appointed to evaluate the competing offers.
Koegler noted that management controls between 38% and 48% of the company's voting rights and that any merger must be approved by a voting majority. The company's Class B stock carries 10 times the voting power of its Class A shares.
Koegler said the committee was skeptical about Soliman's ability to actually win control of the company because of management's substantial share ownership and voting clout. "Rather than lose a bird in the hand, (the board) decided to say yes to an $18-a-share transaction."
The 11-member board wanted to get independent shareholders the "highest real money price," said another source who requested anonymity. But the board "must take into account not only the dollars, but the certainty and the timing of when the money actually is likely to happen. A multistage and multicondition kind of offer that says, 'if, if, if, then we'll consider x,' is different than people actually certifying they can perform."
Darwin C. Dornbush, a board member and attorney for the management group, said Soliman "did not come to the board with a specific, formal offer."
In its release, the company said the management buyout "is fair to the company's shareholders . . . from a financial point of view."
The management group's tender offer will remain open for 20 working days and is subject to a majority of shares being tendered and the receipt of financing. Financing will consist of $61 million in bank loans and the sale of $45 million in subordinated debt instruments.
Even if Soliman, whose American Restaurant Group owns and operates more than 300 restaurants, loses the chance to become the 17th-largest U.S. restaurant chain, he will not walk away from the deal empty-handed.
In documents filed Monday with the Securities and Exchange Commission, Soliman revealed that on Sept. 2 he paid an average of $13.98 per share for 194,500 shares of Class A stock and an average of $13.90 for 17,700 Class B shares. Under the management buyout, he will reap a tidy profit of about $850,000 before expenses.
Soliman declined comment Monday on whether he would file a lawsuit against Restaurant Associates or its board of directors. But industry analysts and company sources acknowledged Monday that litigation is likely.
Management does "control a good portion of the stock, so it's certainly in their interest--and not the shareholders'--to get the deal done," said Barry Ziegler, vice president of research at Tucker, Anthony & R.L. Day, a New York securities firm. "It does create a conflict, no two ways about it."
Koegler added: "There is always in this business a shareholders' lawsuit. Somebody would get mad if we took $19, if we took $18, or if we took either offer and it turned out not to happen. . . . We anticipate litigation. We just don't known which claim will be the claim yet."