Luby's Inc. (LUB) recently announced a definitive agreement to acquire Paradise Restaurants Group LLC, and some of its affiliates (collectively known as, "Cheeseburger in Paradise") for $11 million in cash.
The transaction also includes the customary reimbursements for cash-on-hand, inventory, and accounts receivable offset by liabilities assumed at the closure of the deal. The transaction is expected to close on or before December 5, 2012.
Luby's - the owner of Luby's Cafeterias and Fuddruckers brands - plans to finance the transaction through cash and credit facilities. We view the deal as strategically positive for both parties, given that Paradise Restaurants has been offered a justified valuation for this buyout in our opinion. Also, the deal holds instant cash value to Paradise.
Set up 10 years ago in collaboration with the legendary entertainer Jimmy Buffett, Cheeseburger in Paradise is famous for beach parties, food and other unique items. This full-service island-themed restaurant and bar chain features unique themed-bars and offers special "boat drinks".
Post acquisition, Luby's will operate 23 Cheeseburger in Paradise locations in 14 states. We believe that the Paradise group will likely broaden Luby's reach not only geography-wise but concept-wise. Moreover, the presence of Cheeseburger in Paradise in highly populated areas with close proximity to malls and tourist spots make it a lucrative target for acquisition. Thus, the latest acquisition should facilitate the growth of Luby’s.
According to Luby’s management, Cheeseburger in Paradise complements Luby's Cafeterias and Fuddruckers concepts, both of which are casual dining restaurants with bar offerings. Consequently, we expect both the companies to derive synergies from the deal.
At present, Luby's operates 93 cafeterias, 62 Fuddruckers restaurants, two Koo Koo Roo Chicken Bistros, and one Bob Luby's Seafood Grill. Luby's company-operated units are mainly concentrated in Texas, Oklahoma and Arkansas. There are 121 Fuddruckers franchises across the United States, Puerto Rico, Canada, and Mexico.
Luby's competes with the likes of McDonald's Corp. (MCD) and BJ's Restaurants Inc. (BJRI) . We are maintaining our long-term “Neutral” recommendation on the stock.
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