Golden Gate to Buy California Pizza - Analyst Blog
27 Maggio 2011 - 1:30PM
Zacks
California Pizza Kitchen
Inc (CPKI), a leading casual dining restaurant chain
recently signed a definitive agreement with San Francisco-based
private investment firm, Golden Gate Capital. As per the deal,
Golden Gate will acquire the company for approximately $470 million
or $18.50 per share in cash.
The Los Angeles-based pizza chain
began exploring strategic and financial alternatives in February
2010 and took more than a year to find a suitor. The offer price is
at a 32% premium to the 30-day average price of the share before
the search for a prospective buyer began and 10.7% higher to the
closing share price prior to the day of acquisition announcement.
The tender offer is scheduled to commence by June 8 and the
transaction is expected to be completed in the third quarter of
2011.
However, the completion of the deal
is subject to regulatory as well as shareholders’ approvals and
other customary closing conditions. Moreover, possibility of a
higher bid emerging is low and based on the extended length of the
company’s strategic review; we believe completion of the deal is
imminent.
Post acquisition, the private
equity firm, which has a track record of investments in the
restaurant industry will focus on the overall growth of the
company. Earlier, Golden Gate had purchased Romano’s Macaroni Grill
in 2008 and On the Border Mexican Grill in March 2010.
Moelis & Company is acting as
the financial advisor to California Pizza Kitchenand Kirkland &
Ellis LLP are acting as Golden Gate’s legal advisers with regard to
the transaction.
Two lawyers, Richard Rosenfield and
Larry Flax, founded California Pizza Kitchen in 1985. The company
currently operates 265 restaurants, of which 205 are company-owned
and 60 are either franchised or licensed in 32 states and 11
foreign countries. The company serves pizzas, pastas, soups,
sandwiches and other food items.
California Pizza Kitchen reported
earnings of 9 cents per share in the first quarter of 2011, which
was above the Zacks Consensus Estimate of 6 cents, but was below
the prior-year quarter’s earnings by a penny. The above
expectation results were driven by menu optimization program,
focusing on higher margin menu items and cost control, offsetting
lower sales.
For the second quarter of 2011, the
company expects earnings in the range of 20 cents to 21 cents.
Comparable-store sales are forecasted between flat to up 1.0%.
We view the deal as strategically
positive, its sagging same-store sales and declining traffic are
adversely affecting the company’s growth as consumers with lower
disposable income are dining out less or looking for cheaper
alternatives such as fast food centers. Furthermore, like all
restaurant companies, California Pizza Kitchen is susceptible to
higher input costs, which will lessen the magnitude of margin
rebound. The company expects commodity cost inflation in 2011 to be
in the range of 3% to 3.5%, up from previous expectation of 2.5%.
Moreover, the company faces stiff competition from other
restaurants like Chipotle Mexican Grill, Inc (CMG)
and The Cheesecake Factory Incorporated
(CAKE). However, we are disappointed with
the price offered in the transaction as it is less than the
company’s 52-week high stock price of $20.
CHEESECAKE FACT (CAKE): Free Stock Analysis Report
CHIPOTLE MEXICN (CMG): Free Stock Analysis Report
CALIF PIZZA KIT (CPKI): Free Stock Analysis Report
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