In late February, THL Partners agreed to take CKE Restaurants (CKR) private in a transaction worth $619 million or $11.05 per share. But the deal involved a "go shop" provision that allowed CKE to contact other possible bidders.
While such clauses are often formalities, this time was different as Apollo Management made its own offer for the company -- and CKE accepted. The deal comes to $12.55 per share or a total of $693.9 million. This is certainly a good outcome for CKE's shareholders, who have suffered over the past couple years. It's also a sign that private equity operators are getting more aggressive with deal-making.
Back in 1941, Carl Karcher started a fast-food burger chain in Los Angeles, California. The timing was spot on as the state grew rapidly after Word War Two. Now, CKE has 3,000 locations across 43 states and 13 countries. Besides its flagship Carl's Jr. chain, CKE operates other brands, including Hardee's, Green Burrito and Red Burrito.
CKE's significant footprint in California, however, has been a drag on sales as the recession continues to take a toll on the state. In addition, the company must fend off tough competitors like McDonald's (MCD) and Wendy's (WEN).
But even with these challenges, CKE has continued to make progress. For example, the company has expanded its menu with premium offerings like the Six Dollar Cheeseburger and the Big Carl. There have also been edgy advertising campaigns, as well as store remodelings. Moreover, CKE continues to generate strong cash flows, which totaled $167 million last year.
All in all, CKE is an ideal candidate for a private-equity deal. It also looks like the company should get back to growth. For example, the company's proxy statement provides internal forecasts, which show that revenue is expected to go from $1.41 billion in 2010 to $1.54 billion in 2012. During this time, EBITDA is forecast to increase from $167 million to $177 million.
In other words, it appears that management believes the economy will improve, especially in California. And like typical forecasts, this one is also likely to be somewhat conservative.
Might there be another bid? It's possible but unlikely. The CKE deal has been vetted thoroughly and the valuation now looks fairly reasonable for shareholders.