Lone Star squared

The Texas-based private equity firm has bought the previously unaffiliated Lone Star Steakhouse chain for $600m.

Lone Star Funds has acquired Lone Star Steakhouse & Saloon for more than $600 million (€465 million). The Wichita, Kansas-based chain has lagged behind competitors like Outback Steakhouse in the fast-growing steakhouse sector.

The Dallas-based private equity investor, led by managing partner John Grayken, will pay $27.10 per share for the restaurant chain, a 15 percent premium over the stock's August 17 closing price. The deal is expected to be completed in the fourth quarter of this year.

The restaurant company owns and operates 222 of its flagship Lone Star Steakhouse & Saloon eateries across the US, as well as 40 others under different brand names including the Sullivan's, Del Frisco's Double Eagle and Texas Land & Cattle steakhouse chains. According to SEC filings, the company owns approximately twothirds of its restaurant locations.

Despite growth in the steakhouse sector, which has outpaced overall restaurant industry growth, same store sales at the chain's flagship has fallen 2.2 percent so far this year. “They really have been among the slower growers by far,” said Ron Paul, president of Chicago-based restaurant consultancy Technomic. Oftentimes, deals like this lead investors to re-negotiate leases or to exit some markets, which could mean selling off assets, he said.

During the period it held troubled family restaurant chain Shoney's, Lone Star slashed the number of outlets by nearly a third and sold off a growing subsidiary, the Captain D's seafood chain. In 2002, Lone Star bought everything under the foundering Shoney's umbrella for $18 million and the assumption of $255 million in debt, selling it for an undisclosed sum to Centrum Equities in July.

“We have a history of buying well-known brands and we believe Lone Star Steakhouse & Saloon is a great addition to our portfolio,” said Len Allen, president of US operations for Lone Star Funds, in a statement.

As for the Lone Star Steakhouse chain, the company had previously agreed to a buyout by investment firm Bruckmann, Rosser, Sherrill & Co. for $579 million in cash in 2002. That deal, which would have led to the exit of founder and chief executive Jamie Coulter, fell through after some stockholders were critical of the offer. Coulter called the offer from Lone Star Funds “in the best interests” of the company's shareholders, according to a statement.

“One way or another, it doesn't look like it's a growth chain story, so it's got to be a value play,” Technomic's Paul said of the deal.

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