CORRECTED-UPDATE 2-California Pizza Kitchen seeks buyers-source

Sun Apr 11, 2010 11:04pm EDT

(Correcting paragraph 11 to change "handles" to "handled," and adding that Kraft sold its frozen pizza business to Nestle)

* Company soliciting suitors-source

* Shares close up 14 percent

(Recasts, adds background, bylines, updates shares)

By Megan Davies and Lisa Baertlein

NEW YORK/LOS ANGELES, April 9 (Reuters) - California Pizza Kitchen Inc CPKI.O is seeking buyers for the restaurant chain, a source familiar with the deal said, sending its shares up as much as 17 percent on Friday.

The chain known for gourmet hearth-baked pizzas and creative salads is valued at just over $500 million based on Friday's closing share price of $20.74.

California Pizza shares rose as much as 17.2 percent on Friday, including the after-hours rise.

Private equity groups have been smelling opportunity in the casual dining sector of late, as financing becomes more accessible and consumers show more willingness to eat out.

Rival CKE Restaurants Inc CKR.N, owner of the Hardee's and Carl's Jr hamburger chains, has solicited counter offers recently after agreeing in February to be bought by private equity firm Thomas H. Lee Partners. [ID:nSGE6360LH]

And Chili's Grill & Bar parent Brinker International Inc (EAT.N) is selling its On the Border Mexican Grill & Cantina brand to an affiliate of Golden Gate Capital.

California Pizza Kitchen -- started in Beverly Hills in 1985 by two attorneys -- owns 205 restaurants mostly in California and franchises or licenses another 47 in 32 states and nine countries.

The 25-year-old casual dining chain helped introduce to mainstream diners new pizza combinations inspired by celebrity chefs Alice Waters and Wolfgang Puck. Restaurants feature an open-flame oven and menus are replete with such selections as Thai Chicken and Barbecue Chicken pizzas.

It also operates a high-margin frozen pizza business that could make it attractive at a time when high unemployment is forcing diners to eat at home instead of restaurants.

HIGH-MARGIN PIZZA

The Wall Street Journal reported earlier that California Pizza Kitchen has been soliciting interest from potential buyers, including private-equity firms. The company did not respond to a request for comment.

The company had total 2009 revenue of $664.7 million, $7.7 million of which came from royalties from its licensing agreement with Kraft Foods Inc KFT.N, which handled sales of its frozen pizzas in grocery stores. Kraft subesequently sold its frozen pizza business to Nestle (NESN.VX).

In February, the company forecast 2010 earnings of 68 cents to 73 cents per share, below analysts' average estimate of 77 cents, according to Thomson Reuters I/B/E/S.

It also expected 2010 same-store sales to be flat to down 2 percent.

According to its 2009 annual report, it has long-term debt of $22.3 million.

California Pizza Kitchen shares rose over 2 percent to $21.20 in extended trading, after closing up $2.56, or 14 percent, at $20.74, on Nasdaq. (Reporting by Megan Davies and Michele Gershberg in New York and Lisa Baertlein in Los Angeles; Writing by Alexandria Sage;editing by Carol Bishopric)

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