December 16, 2011 / 12:30 PM / 6 years ago

UPDATE 3-Restaurant investor Fertitta snaps up Morton's steakhouse

* Offer price $6.90/share values company at $117 mln

* Price a 34 pct premium to Morton’s last close

By Ranjita Ganesan

Dec 16 (Reuters) - Tilman Fertitta struck a $117 million deal for Morton’s Restaurant Group Inc, adding another strong brand to his growing restaurant empire, and outlined plans to modernize the struggling company’s flagship steakhouse chain.

Fertitta, who already owns a 5 percent stake in Morton‘s, offered $6.90 a share -- 34 percent higher than the stock’s Thursday close.

The deal marks the industry veteran’s second acquisition in as many months. Last month, he picked up McCormick & Schmick’s following a long-standing pursuit of the seafood chain.

The two brands add to Fertitta’s existing restaurant properties such as Bubba Gump Shrimp and Vic & Anthony‘s. Fertitta holds these properties through Landry’s Inc, which also runs the Atlantic City casino Golden Nugget.

Morton‘s, which also runs the Las Vegas-based Italian restaurant Trevi, has been losing ground to fine-dining peers like McCormick & Schmick’s and Ruth’s Hospitality Group , as it faces the rising cost of beef. The company has also struggled to stoke free cash flow.

“(The) valuations are toward the lower end of recent industry transaction multiples, which we believe is due to the company’s below average margins and limited long-term growth visibility,” Raymond James analyst Bryan Elliott wrote in a client note.

However, Cowen & Co, which kept its “outperform” rating on the stock, said the deal is appropriately valued and will likely go through without impediments.

“This transaction is well-suited for Morton’s as the company will be best-postioned to refresh the store base as a private company,” analysts led by Paul Westra wrote in a client note.

REVAMP PLANS

Fertitta plans to revamp Morton’s and introduce new items on the traditional steakhouse operator’s menu.

The 33-year-old restaurant chain, known for its prime steaks, operates more than 70 restaurants catering to people looking for a more expensive night out, as well as business persons with more durable expense accounts.

It generated about $300 million in sales last year.

Earlier this year, Morton’s had announced it was considering “strategic alternatives.”

Since then, the stock had declined about 28 percent to close at $5.16 on Thursday on the New York Stock Exchange. It was trading up 33 percent at $6.84 on Friday.

Chicago-based Morton’s also said on Friday private equity firm Castle Harlan, which owns a 27.7 percent stake in the company, will tender its shares and vote in favor of the deal.

Castle Harlan, founded by John Castle in 1987, had bought out Morton’s for $71.1 million in 2002, outlasting billionaire investor Carl Icahn who also wanted the company. The company went public again in 2006.

Jefferies & Company and KeyBanc Capital Markets Inc are advising Morton’s on the deal, which is expected to close in early February.

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