M & A Law Prof Blog

Raw Meat

The shareholders of OSI Restaurant Partners yesterday approved the amended merger agreement for the company to be acquired by an investor group consisting of Bain Capital Partners, LLC, Catterton Management Company, LLC, OSI's founders and its executive management.  OSI did not disclose the exact vote in its press release announcing the results, but it has been reported that the merger agreement would not have been approved had OSI not acted to lower the threshold required vote a few weeks ago.  OSI now expects the transaction to now close on June 19, 2007.  Presumably, the extra time is to rearrange the financing for the transaction. 

I've written a lot on this deal (see posts Bloomin' Onion, Bloomin' Onion (Redux), Bloomin' Onion Part III, Free Food! OSI Restaurant Partners Shareholder Meeting Today, and Games People Play).  I was also quoted yesterday in a piece in the St. Petersburg Times (OSI is headquartered there) where I stated that this deal is "an interesting case study in management buyouts with private equity and how the process can be, for lack of a better word, manipulated . . . ."  More specifically, I believe that management's undue influence on the OSI sale process left the OSI shareholders with a Hobson's choice -- giving shareholders no other option than to accept this bid. The St. Petersburg article chronicles management's impropriety here, and its effect is also illustrated by Institutional Shareholder Services statement recommending the transaction: 

We recognize the shortcomings in the process and the conflicts of interest of management and founders . . . . but given the downside of a failed transaction resulting in a loss of premium and likely continued deterioration of fundamentals, support for the transaction is warranted.

Hopefully, OSI was at least nice enough to serve their soon to be former shareholders some tasty, free food at the meeting yesterday.  They deserve that at least. 

Games People Play

OSI Restaurant Partners, Inc., owner of the Outback Steakhouse and Cheeseburger in Paradise restaurant chains, will tomorrow hold its shareholder vote with respect to the $3.2 billion offer to be acquired by a consortium led by Bain Capital Partners, LLC and Catterton Management Company, LLC.

This buy-out has been problematical from the start.  OSI's founders, CEO, CFO, COO and Chief Legal Officer are all involved in the buy-out and at times have acted to influence the process.  In addition, the buy-out has been criticized for its low premium and OSI has postponed its meeting three times in order to round up enough shareholder support.  With the last post-ponement, OSI announced that the buy-out group had agreed to increase the consideration offered to $41.15 up from $40.00 per share. 

In connection with the announcement, OSI also agreed with the buy-out group to lower the threshold vote required to approve the merger.  The original vote per the proxy statement required approval by:

a majority of the outstanding shares of our common stock entitled to vote at the special meeting vote for the adoption of the Merger Agreement without consideration as to the vote of any shares held by the OSI Investors.

The revised vote per the merger agreement amendment now requires approval by a majority of the outstanding shares, the required threshold under Delaware law and:

the affirmative vote of the holders, as of the record date, of a majority of the number of shares of Company Common Stock held by holders that are not Participating Holders, voting together as a single class, to adopt the Agreement and the Merger.

OSI Investors and Participating Holders in the above two clauses are the same group:  the executive officers and founders of OSI who are participating in the buy-out.  Careful readers here will note that the change in language above reduces the required vote for approval of non-participating shareholders from a majority of all outstanding shares to a majority of the minority shares. The St. Petersburg Times reports that this change has the effect of lowering the number of required votes to approve the transaction by 4.4 million (from 37.8-million of the 66.8-million shares not owned by OSI participants to 33.4-million votes plus one).

As noted, Delaware only requires an absolute majority, so the required vote in either case is higher.  OSI is requiring this higher vote due to the requisites of Delaware law which require a majority of the minority of OSI shareholders to insulate the OSI participants and the Board from liability by waiving management's conflict.  So, both votes still preserve this majority of the minority aspect (a smart move given managements conflicted metaling in the buy-out process).  But, the special committee's agreement to lower the vote is a dubious one at best, and though probably acceptable under Delaware law, is further evidence of the problems which can arise with management buy-outs generally and the board process here in particular.    

Free Food! OSI Restaurant Partners Shareholder Meeting Today.

OSI Restaurant Partners is holding its three times postponed shareholder meeting today.  According to OSI's press release, the purpose of the meeting is only to adjourn it to June 5, 2007 in order to provide OSI shareholders more time to consider an increased offer from a consortium led by Bain Capital Partners, LLC and Catterton Management Company, LLC.  The buy-out group on Tuesday announced that it will now pay $41.15 per share in cash up from $40.00 per share.   

I've blogged before about this deal and management's inordinate and inappropriate involvement in the process.  OSI's founders, CEO, CFO, COO and Chief Legal Officer are all participating in the deal.  I believe that their undue influence on the process and participation has given shareholders a Hobson's choice:  no deal at all or a less than full premium in the private equity/management buy-out being offered.  Nonetheless, analysts believe that the latest increase offered by the buy-out group should be enough to gain shareholder approval.  A substantial number of OSI's shares are now held by arbitrageurs, and Tuesday's 3% raise is a nice return on an annualized basis for them.

For aggrieved OSI shareholders, I note that dissenters' rights are available if the transaction goes through and you don't vote for it.  Additionally, another way to earn some extra return, would be to attend the next two meetings.  These meetings typically have a spread of food and refreshments, and since OSI is a restaurant company it might be tastier and more copious than normal.  I make no promises about this, but if there is food it would be free for shareholders, so the more you eat the more money you can put into your pocket (actually stomach).  Not to mention you can exercise your shareholder rights.  Today's meeting time and place for those OSI shareholders hungry and/or interested is:    

Friday, May 25, 2007, at 11:00 a.m., Eastern Daylight Time, at A La Carte Event Pavilion, 4050-B Dana Shores Drive, Tampa, Florida 33634.

Let me know if it was worth the trip and I'll make another post on June 5 as a reminder, perhaps including the menu from this meeting. 

Update:   The meeting today voted to adjourn to June 5. 

The Bloomin' Onion (Part III)

OSI Restaurant Partners, Inc., owner of the Outback Steakhouse and Cheeseburger in Paradise restaurant chains, today announced that it agreed to an increased offer from a consortium led by Bain Capital Partners, LLC and Catterton Management Company, LLC.  The buy-out group will now pay $41.15 per share in cash up from $40.00 per share.  OSI's founders who are part of the acquiring group have agreed to receive only $40 per share for their stakes.  Bloomberg reports that many shareholders are likely to still view the consideration as insufficient, but that analysts believe the raise should be enough to obtain necessary shareholder approval.

In connection with the new agreement, OSI today also postponed for the third time to May 25, 2007 its shareholder meeting to consider the proposal.  It was supposed to be held today.  I've blogged before about the perils of management-led buy-outs and the OSI one in particular (see here and here).  OSI's CEO, CFO, COO and Chief Legal Counsel as well as its founders are all participating in the buy-out and have exercised what appears to be inappropriate influence and activity in this transaction.  The postponement of the meeting for three times in order to make sure that the proposal has sufficient votes speaks to these issues.    

NB.  If the transaction were structured as a tender offer, the payment of differential consideration here to the OSI founders would not be permitted due to the requirements of the all-holders/best price rule.  This rule does not apply to mergers.  Hopefully, if the SEC ever decides to update its tender offer and merger rules for the modern age, it will end this no longer justified disparity by applying the rule to both structures or neither.  For more on this and other no longer jusitifed SEC merger/tender offer distinctions, see my soon to be published article, The SEC and the Failure of Federal Takeover Regulation.      

The Bloomin' Onion (Redux)

OSI Restaurant Group, owner of the Outback Steakhouse and Cheeseburger in Paradise restaurant chains, yesterday announced that it had once again delayed its special meeting of stockholders, originally scheduled for May 8 and previously postponed until May 15, 2007, until May 22nd.  The purpose of the delay is to permit OSI even more time to continue to solicit votes to approve 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.  The acquisition is in jeopardy due to shareholder opposition to the price being offered (for more on the shareholder opposition, see the Wall Street Journal blog-post here). 

The OSI management/private equity buy-out has always been a problematical one due to the widespread involvement of its management and the troublesome way in which they inserted themselves into the sale process.  OSI's CEO, COO, CFO and Chief Legal Officer are all involved and stand to profit from the deal going being approved.  Given these conflicts and deep management involvement, the failure of a competing bid to emerge despite the presence of a 50-day "go-shop" provision is not surprising.  OSI's repeated delay of the shareholder meeting to round up support and management's now active involvement in the solicitation, while legally permissible under Delaware law, is yet more evdence of a raw deal.