UPDATE 2-Rick's plans to buy rival strip club operator

Tue Feb 16, 2010 8:43pm EST

* Rick's signs plan to buy rival strip club operator VCG

* To pay around $45 mln in stock and cash

* Posts lower-than-expected earnings

* Shares fall 12 pct after the bell

NEW YORK, Feb 16 (Reuters) - Strip club operator Rick's Cabaret International Inc (RICK.O) said it plans to buy rival VCG Holding Corp VCGH.O for about $45 million, creating what it said will be the largest publicly traded strip club operator in the United States.

Rick's also posted first-quarter earnings that missed expectations. News of the deal and earnings on Tuesday drove the company's shares down 12 percent to $11.30 in extended trade.

Rick's operates 18 nightclubs in seven states. In acquiring VCG, it will pick up 20 clubs in 10 states operating under such brand names as Penthouse, Jaguars and PT's Showclub.

According to the letter of intent signed by the companies, most of VCG's shareholders would receive $2.20 to $3.80 worth of Rick's shares for every VCG share.

Based on Tuesday's closing price, VCG would be valued at $2.66 a share, the companies said.

Rick's would also buy 5.77 million VCG shares held by Chairman and Chief Executive Troy Lowrie and his affiliates for $2.44 a share in cash or the price of common stock received by VCG's shareholders in the proposed merger, whichever is lower. Lowrie could take payment of up to 30 percent of his shares in stock at the exchange rate.

VCG shares closed at $2.19 on Nasdaq on Tuesday.

The letter of intent provides for an exclusivity period through March 12 for the companies to negotiate. If a definitive deal is not reached by then, the letter of intent will terminate, the companies said.

For the first quarter, Rick's reported net income available to the company of $782,688, or 9 cents a share. Total revenue rose 17 percent $20.0 million.

Analysts on average were expecting earnings of 13 cents a share on revenue of $19.3 million, according to Thomson Reuters I/B/E/S.

Rick's costs related to acquisition activities and aggressive marketing more than doubled to $2.9 million.

(Reporting by Michael Erman in New York and Viraj Nair in Bangalore; Editing by Anne Pallivathuckal and Richard Chang)

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