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Boston College Law School

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Wednesday, May 9, 2007

The Bloomin' Onion

Steak is in the news.  Yesterday, I blogged about the private equity buy-out of Smith & Wollensky Restaurant Group.  Today, OSI Restaurant Group, owner of the Outback Steakhouse and Cheeseburger in Paradise restaurant chains, is the story.  OSI yesterday announced that it had postponed the special meeting of its stockholders regarding its proposed $3.2 billion acquisition by an investor group consisting of Bain Capital Partners, LLC, Catterton Management Company, LLC, OSI's founders and its executive management.  According to OSI, the meeting was postponed to May 15, 2007 in order to solicit additional votes.

The postponement is yet another sign of shareholder resistance to management/private equity buy-outs at perceived bargain prices.  In the past month, shareholders of Clear Channel Communications and Qantas Airways have struck up successful resistance to such acquisition proposals.  The OSI buy-out was also notable for wide-spread participation of OSI management, including its founders, CEO, COO, CFO and Chief Legal Officer.  According to the proxy, these executives waived $17 million in change of control compensation in connection with the acquisition proposal.  Their participation and financial subsidy put any competing bid at a substantial handicap.  And not surprisingly, this was yet another example where a 50 day go-shop negotiated by Wachtell failed to find any competing bids (for the potential problems with these provisions see my blog here).

In connection with the postponement, the Wall Street Journal reported that OSI was forced to cancel a $550 million bond sale, underwritten by J.P. Morgan and Bank of America, and made on April 26, 2007 to finance the buy-out.  OSI was forced to cancel the sale since the first settlement day for the bonds was today, and the bond sale was conditional on shareholder approval of the acquisition.  The bond sale will be unwound, but OSI is now in a position where it will have to refinance the deal and incur yet additional underwriting fees for an acquisition proposal which shareholders appear to feel lukewarm about.  If the acquisiton is voted down, these shareholders will also be saddled with these expenses.  The drop-dead date for the merger agreement was April 30, 2007, and either party can now terminate the deal.  Given the position of OSI's shareholders, the commitment of OSI's board to postpone the date for the meeting without an increase in the consideration paid is a dubious one, though a permissible exercise of judgment under its fiduciary duties. 

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