P.F. Chang's to Go Private: Buyout Bid Adds a 30% Tip to Stock

P.F. Chang'sShares of P.F. Chang's (PFCB) soared nearly 30% Tuesday after the restaurant chain agreed to be acquired in a $1.1 billion deal.

Private equity firm Centerbridge Partners expects to tender an offer of $51.50 per share later this month. There's always the chance a rival bidder might step up, but this is a mutually accepted buyout offer that should go through.

P.F. Chang's was a growth darling when it went public 14 years ago. Offering Chinese cuisine with a few Americanized tweaks in a moderately upscale casual-dining setting was a novel concept. Outside of quick-service specialist Panda Express, earlier attempts to take a Chinese dining chain national had flopped. Folks preferred independent family-owned eateries to satisfy their moo shu pork or wonton soup fix.

P.F. Chang's China Bistro was so successful that it eventually rolled out a more-casual sister concept chain, Pei Wei Asian Diner.

Casual Dining on the Menu

Chang's is just the latest publicly traded restaurant company to be gobbled up by private interests. The number of restaurant firms trading on U.S. exchanges has gone from 107 in 2000 to just 72, and speculators expect that number to keep shrinking. Shares of Texas Roadhouse (TXRH), Kona Grill (KONA), and Cheesecake Factory (CAKE) climbed 8%, 8%, and 3%, respectively, on Tuesday, partly on the premise that the consolidation and buyout trends will continue.

If P.F. Chang's is worth 30% more than what investors were willing to pay for the stock on Monday, what does it mean for the rest of the industry's dynamic casual dining chains?

Well, not every restaurant stock tastes like chicken: There's a big difference between a hot restaurant stock and one that's an ideal buyout candidate.

Panera Bread (PNRA), Buffalo Wild Wings (BWLD), and Chipotle Mexican Grill (CMG) posted blowout quarterly results last month. The three stocks are market darlings, but they also trade at rich valuations.

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More important, they have little reason to cash out now. Even if a buyer suggested acquiring any of the three chains at a 30% premium, the restaurateurs and their shareholders would likely rebuff the advances. They've got their sights set on meatier capital appreciation a few years down the road, which they'll see if they continue to execute on their expansion strategies.

P.F. Chang's, on the other hand, has had its ups and downs. Its trajectory is closer to that of California Pizza Kitchen, which went private in a $470 million deal last year. Texas Roadhouse, Kona Grill, and Cheesecake Factory make more sense as approachable buyout opportunities.

Order Up

Centerbridge Partners knows what it's getting in P.F. Chang's. It's more than just a restaurant chain. The company has successfully licensed its concept for international and airport locations. Hit your local grocer's freezer section and you may even see P.F. Chang's entrees.

The combination of a moderately successful pair of concepts and royalty revenue from licensed efforts was too tasty to pass up. Now it's time to see which hungry eatery is next on the buyout menu.

Longtime Motley Fool contributor Rick Munarriz owns shares of Cheesecake Factory. The Motley Fool owns shares of Buffalo Wild Wings, Panera Bread, and Chipotle Mexican Grill. Motley Fool newsletter services have recommended buying shares of Panera Bread, Chipotle Mexican Grill, and Buffalo Wild Wings; writing covered calls on Buffalo Wild Wings; and creating a bear put spread position in Chipotle Mexican Grill.
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