February 6, 2012 / 1:30 PM / 8 years ago

UPDATE 5-Fidelity Nat'l adds O'Charley's to restaurant portfolio

* Fidelity to buy O’Charley’s for $9.85 a share

* Deal values casual dining chain at $221 mln

* Fidelity to pay a premium of 42 pct

* Looks to diversify away from its insurance business

By Mihir Dalal and Arpita Mukherjee

Feb 6 (Reuters) - Fidelity National Financial Inc agreed to buy O’Charley’s Inc in an all-cash deal that values the casual dining chain at $221 million, marking Fidelity’s latest move outside its core title insurance business.

The deal will bolster the title insurance and mortgage services provider’s restaurant holdings, which already include the Village Inn, Bakers Square and Max & Erma’s chains, and put it on course to fetch more than $1 billion in sales from this business.

Fidelity National, which currently owns about a 9.5 percent stake in O’Charley’s, will pay $9.85 a share for the company, which has struggled to contain rising costs and increase traffic at its main chain in recent times. The offer is 42 percent more than the stock’s Friday close.

“We have been seeking an investment in a larger, scalable, strategic restaurant operating company to complement our successful investment in American Blue Ribbons,” Fidelity National Chairman William Foley said in a statement.

American Blue Ribbons, a unit of Fidelity National, runs Village Inn, Bakers Square and Max & Erma’s.

“(O’Charley’s) is an investment for Fidelity and I don’t think they’ll continue to own it indefinitely. They’ll hope to improve it and sell it,” said RBC Capital Markets analyst Mark Dwelle.

The deal comes at a time when rising food and beverage costs are eating into O’Charley’s margins.

The company — which operates or franchises 342 restaurants under its main O’Charley’s chain, as well the Ninety Nine Restaurant and Stoney River Legendary Steaks brands — reported a loss in its latest reported quarter.

American Blue Ribbons and O’Charley’s will work together to improve the company’s results after the takeover, Foley said.

Foley, founder and chairman of Fidelity National, also led the board of another dining chain, CKE Restaurant Group, from 1995 to 2000.

Fidelity National is seen generating just under $5 billion in sales next year, mostly from writing title insurance, a business that involves insuring property owners against problems in title documents related to the property.

O’Charley’s sales are expected to rise to $846.1 million in fiscal 2012, according to Thomson Reuters I/B/E/S.

Fidelity National, which has a market value of over $4 billion, has a history of making investments in other sectors.

Apart from its restaurant holdings, the company has a minority stake in human resources solutions provider Ceridian Corp and Remy International, which makes electrical components for automobiles.

Last July, it struck a deal to sell its flood insurance business — the largest in the United States. In December, it dumped most of its personal lines business, which sells coverages like home and auto insurance.

Fidelity National plans to start a tender offer for O’Charley’s shares on or about Feb. 24 and said the offer will expire on April 2. O’Charley’s may solicit proposals from other companies through March 6.

Evercore Partners is advising O’Charley’s, while Jefferies is Fidelity’s adviser for the deal.

Fidelity National shares were off 1 percent at $18.21 on Monday on the New York Stock Exchange, while O’Charley’s stock soared 42 percent to $9.80 on the Nasdaq.

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