In peril, Outback hires emergency fix-it firms
Note: Outback owner OSI issued a statement Wednesday evening in response to this report and others in the media on its financial situation. I have included it verbatim at the end of this posting.--Robert Trigaux
Wake up and good morning. It feels strange to write about the induction of Outback Steakhouse restaurant chain founders Chris Sullivan, Bob Basham and Tim Gannon into the U.S. Business Hall of Fame only days ago, and now to report that OSI Restaurant Partners (the private parent of Outback, Carrabba's and other chains) is truly on the financial ropes.
In the fast moving restaurant industry, that was then and this is now. Now there's talk among rating agencies of potential bankruptcy. While the Outback trio do not now run OSI on a day to day basis, they remain involved. And taking their company private enriched them greatly while loading the chain with enormous debts. (Photo: St. Petersburg Times files.)
Private investing firm Bain Capital has hired restructuring specialists -- think of them more as emergency triage doctors -- AlixPartners LLP (its recent cost-cutting mantra: "Think smaller") and Miller Buckfire & Co. to help salvage its $3.2 billion 2007 takeover of Tampa-based OSI Restaurant Partners Inc., says Bloomberg News. Miller Buckfire already is working with OSI on managing its debts. OSI is struggling with declining revenue and a 30-fold increase in losses during the current economic downturn. A new and more budget-conscious menu was recently introduced at Outback.
And Moody's Investor Service -- stung by recent allegations that it tends to bless iffy companies with AAA ratings -- just published a list called "Bottom Rung" that names 283 companies at the greatest risk of default. Yes, OSI Restaurant Partners made the list. (So did Lazy Days RV Center in Seffner and Quality Distribution in Tampa, but those are stories for another time.)
OSI, whose 1,491 restaurants can be found in 49 U.S. states and 20 countries, offered to buy back some of its bonds for as little as 25.5 cents on the dollar, according to Bloomberg News. In addition to Outback Steakhouse and Carrabba's, the company also operates Bonefish Grill, Roy's, Fleming's and the Cheeseburger in Paradise chains, though a number of those chains have been up for sale for some time.
According to the Bloomberg News story, when Bain and Catterton Partners (the other takeover partner involved in taking Outback private) announced their deal to buy OSI in 2006, restaurant chains were takeover targets because of their predictable cash flows and valuable real estate. Tha attraction faded soon after the OSI deal in June 2007, when two Bear Stearns Cos. hedge funds imploded, real estate prices collapsed, credit markets froze and consumer spending dropped.
It would be a regional tragedy if one of Tampa Bay's great entrepreneurial stories -- the creation and remarkable expansion of Outback Steakhouse -- ends up in Chapter 11 or worse. This economic downturn is taking no prisoners, especially in the retail and restaurant world.
-- Robert Trigaux, Times Business Columnist
At 5:58 pm today, I received an email from OSI executive vice president Joe Kadow with the following statement "in response to reports that OSI has hired 'restructuring' advisors" for its business:
"Recent media reports have indicated OSI has retained “restructuring” advisors. This is not accurate. OSI has not retained nor do we plan to retain any restructuring advisors or services.
"From time to time OSI retains external consultants to assist with selected aspects of its business. Recently OSI retained two firms – Miller Buckfire and Alix Partners. Miller Buckfire has been retained, as was announced in a March 5 press release, for the exclusive purpose of assisting with the Company’s debt tender offering that is currently in progress. Alix Partners was retained back in 2008 solely to assist in identifying and implementing supply chain efficiencies. Alix Partners’ work has played a significant role in OSI’s development of its cost reduction plan for 2009. Their focus has included distribution cost reduction, labor efficiency optimization and repair and maintenance service bundling and optimization.
"Although both Miller Buckfire and Alix Partners have divisions that provide restructuring services to companies, that is not the capacity in which they have been retained by OSI."