Randomly Noted

A good old-fashioned, flip-around-the LBO via IPO could be coming our way soon. And it will be another test of how resilient the markets are today.

LRI Holdings plans to sel up to $200 million of shares in an initial offering underwritten by Credit Suisse. The exact number of shares or price talk range have not been set. LRI is the parent of Logan’s Roadhouse, a chain of restaurants that have grown impressively over the past decade – it today has 211 restaurants. It’s a steakhouse and, as the company says in its preliminary prospectus, was inspired by the roadside-style restaurants that populated Route 66 in the 1930s and 1940s.

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David Ansill's play on a "Sloppy Joe" sandwich. His is the "Sloppy Jose."

As many Randomly Noted readers know, this blogger looks for every opportunity he gets to write about the business of food – especially when the subject is good restaurants with inventive chefs.

Last year, two of my favorite restaurants went out of business – victims of the recession. They weren’t the most expensive places in the world but the food was high-end and on the upper end of what people might want to pay to go out and eat. The first to shutter was in Philadelphia and called “Ansill” after the chef by the same name – David Ansill. Prior to running this sizable restaurant with a bar and pretty decent sized staff, David ran a 32-seat BYOB with a handful of staff.

The other restaurant I loved that went under was called Pamplona and it was based in New York on 28th Street. Chef Alex Urena originally had a high-end Spanish restaurant but saw the economics of that would be tough even in good times. He went smaller scale with tapas at Pamplona. The small plates were pricy but very good. He closed last fall.

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It’s early, but here’s my nomination for quote of the day:

“People will be able to see that the order of chili cheese fries they are considering will be 3,000 calories.”

So said Margo Wootan, a nutrition advocate, as quoted in today’s Los Angeles Times.

The subject is a little-known provision (at least little known to this blogger) in the just-passed massive federal health care reform bill: a requirement throughout the U.S. for chain restaurants, vending machines and some other venues to post the amount of calories contained in every item they sell.

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In the fast-food burger wars, it looks like McDonald’s has the upper hand and may be grabbing some market share from rival Burger King. Earlier today, Burger King reported that system-wide in the U.S. and Canada, its sales fell 8.2% for the first two months of the year – and it said 3 percentage points of that loss was likely due to bad weather in February, especially all of the snow in the Northeast/Mid-Atlantic region. While McDonald’s U.S. numbers didn’t exactly light the world on fire, it had an 0.6% gain in February with an 0.1% loss for the first two months. McDonald’s is actually seeing strong growth overseas. Not Burger King, which saw meager growth in Asia/EMEA and declines in Latin America. Weather obviously didn’t affect McDonald’s. What hurts both is unemployment. And not until the jobs situation turns around will we see any significant improvement for either. But it does seem that either McDonald’s is picking up share or BK customers are hurt more by the unemployment situation.

Denny’s had a real hit on its hands with the “Grand Slam” Super Bowl ad that put chickens on notice that they were expected to lay a lot of eggs for a free breakfast giveaway (click here to see the ad). The ad was considered by many to be the best of those aired during the Super Bowl.

In the eyes of one shareholder group, it is Denny’s that has laid an egg. A group of investors who call themselves “The Committee To Enhance Denny’s” has launched a proxy fight with the company to elect three members to the board. And the Committee has a very specific agenda: cut costs, reduce capex, refocus the marketing message, restore system-wide growth through franchisee development, create a pay-for-performance culture. In other words, the Committee doesn’t think current management has the right ideas and is spelling out a very specific course of action.

Apparently the market believes the Committee has better ideas or at least ideas worth listening to – the stock is up nearly 5%.

“Domino’s Pizza crust to me is like cardboard.”

I’m not quoting a friend or family member – I’m quoting a Domino’s Pizza commercial, in which Domino’s focus group participants denigrate everything about the taste of the chain’s signature product. To trumpet a revamping of its pizza recipe in December, Domino’s put out commercials in which its marketing and product executives listen with dismay to withering criticism: for example, Marketing Director Karen Kaiser saying, “Whoa, this one’s really bad – ‘worst excuse for pizza I’ve ever had.’” Others: “The sauce tastes like ketchup”; “totally void of flavor’; “boring, artificial imitation of what pizza can be.”

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Remember my recent blog about the problematic Landry’s Restaurants buyout? DJN has just reported that activist hedge fund manager Bill Ackman has amassed a 9.6% stake in the firm and opposes CEO Tilman Fertitta’s planned $238 million buyout at $14.75 a share. The fireworks should be interesting, given Ackman’s history (eg Target.) Landry’s shares closed Friday at $16.18 – a sign investors broadly think the restaurant operator will land in another suitor’s arms at a higher price. As I pointed out the other day, a company would have difficulty thriving under the leadership of a fellow who has spent the past two years trying to take it private. Companies, even those which own the likes of the Rainforest Cafe and the Golden Nugget casino, need TLC.

Today’s outrage: a fracas involving a restaurant chain called Landry’s. It turns out the CEO and majority owner, Tilman Fertitta, has been trying to take Landry’s private for nearly two years. Now, a shareholder is suing on the grounds that the $238 buyout is “unfair and grossly inadequate.” I don’t know who’s in the right here. But it doesn’t sit well that a publicly traded company has been headed by a guy who has spent 24 or so months trying to persuade shareholders to sell the firm to him. As DJN reports, the deal was struck last week at $14.75 a share; this is a far cry from Fertitta’s original offer of $23.50 a share in January 2008, before the economic crisis. The shareholder lawsuit, filed in a Texas district court, wants to stop the buyout and demands Landry’s board strengthen the firm and raise its market value. Should the lawsuit manage to kill Fertitta’s buyout, the investor wants any termination fee withheld from the CEO. Fertitta, the suit argues, effectively straddles both sides of the deal, and claims a special committee that was set up to review options for Landry’s wasn’t independent and objective. Wall Street seems to think an alternative bid for Landry’s, whose restaurants carry such names as Rainforest Cafe and Charley’s Crab, is possible. Shares are trading above the proposed buyout price. We have until mid-December to see how this problematic situation plays out.