Chuck E. Cheese Already Triggers a Buyout

Chuck E. Cheese Already Triggers a Buyout

That was quick. Just a week after reports surfaced that family dining chain CEC Entertainment was looking for someone to take it private, Apollo Global Management has stepped forward with a $950 million offer plus the assumption of some $370 million worth of debt, for a total value of around $1.3 billion.

The $54-a-share bid represents a 25% premium over where CEC's stock closed before Reuters reported the company was exploring a potential sale and was working with Goldman Sachs to find a buyer. Apparently the investment house has a ready list of such buyers on its tickler file.

CEC operates the 567-restaurant Chuck E. Cheese chain that offers an arcade-like mix of food along with games of chance, rides, and play areas. It's struggled in recent periods to compete against other forms of entertainment in an economically challenged environment. During its last quarterly earnings conference call, management noted that kid-centric movies far eclipsed its popularity. Coupled with virtually all dining concepts experiencing trouble attracting customers, it's not surprising CEC saw same-store sales fall 2.1% amid an 11% drop in birthday party sales.

The tough environment has led to a lot of activity in the restaurant space, including activist investors pressuring Bob Evans Farms and Darden Restaurants to sell, spin off, or otherwise separate themselves from various business units, and Ruby Tuesday hanging up a shingle saying it was looking for a buyer.

Apollo Global itself was likely looking to replace the Carl's Jr. and Hardees chains that it sold to private equity peer Roark Capital last November. Apollo sold the burger chains' parent CKE for approximately $1.7 billion.

CEC, which also announced today it had adopted a shareholder rights plan with a 10% trigger, has been reviewing its strategic options, and Apollo's offer includes a go-shop period through the end of the month that allows CEC to solicit superior bids from other parties.

According to a New York Times review of the deal, the buyout is the fifth-largest leveraged restaurant buyout of all time, falling just behind Burger King Worldwide (twice), Outback Steakhouse's OSI Partners, and Dunkin' Brands. Two companies have had a hand in the top 10, Apollo and Bain Capital, and private equity is already among the biggest holders of CEC stock, including Wellington Management, FMR, and BlackRock.

The fast sale shows there is still an appetite for compelling restaurant ideas, and the premium offered should give hope to other chains looking to unload a brand or two.

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Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends BlackRock, Burger King Worldwide, and Goldman Sachs. It owns shares of Darden Restaurants. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published