Dave & Buster's defends buyout deal amid investor ire, lawsuits

Nation's Restaurant News, June 24, 2002 by Ron Ruggless

DALLAS -- The management of Dave & Buster's Inc. is facing mounting shareholder opposition to its proposal to take the 31-unit operator of restaurant-entertainment complexes private.

At least two shareholder lawsuits have been filed opposing the management-led proposal to buy out the company at $12 a share -- a deal valued at about $255 million. And Renaissance Capital Group Inc. of Dallas, an adviser to three investment funds that hold about 4.67 percent of Dave & Buster's Inc.'s common stock, said it also opposed the deal.

Renaissance said the tender offer was "artificially and unreasonably low," and it asked the board to suspend the offer.

Dave & Buster's, meanwhile, issued a statement reiterating "its strong belief that the process by which the board and the special committee came to approve the transaction as well as the price and transaction structure has been and is fair to the company's unaffiliated shareholders."

The management-led investment group, which includes the international investment company Investcorp, announced its plan in late May. The offer is set to expire July 2 unless it is extended. In mid-June Dave & Buster's shares were trading slightly above the tender offer.

Russell Cleveland, the head of Renaissance Capital, said in a statement: "On the basis of its analysis of the financials of comparable concept and dinner-entertainment restaurants, Renaissance believes that the share price being offered in connection with the tender offer and freeze-out merger is artificially and unreasonably low."

He noted that Dave & Buster's stock had traded as high as $29 per share within the past three years and that gross revenue of the company had increased more than 96 percent from 1998 to 2001.

"Finally," Cleveland said, "Renaissance believes that the process undertaken by the board of directors of the company is flawed and has not been conducted in a manner that seeks maximum shareholder value for all of the shareholders of Dave & Buster's. Renaissance also believes that the $5 million breakup fee is unreasonable and discourages other potential bidders."

Renaissance's opposition comes on the heels of two lawsuits seeking to stop the proposed buyout in two jurisdictions -- Dallas County, Texas, and Springfield, Mo.

In an amendment filed with the Securities and Exchange Commission, Dave & Buster's said it believed the complaints were "without merit."

The Texas complaint sought an injunction preventing the deal as well as unspecified damages, the company said.

Although Dave & Buster's management did not respond to questions, the company defended its actions in a statement.

"As described in detail in materials mailed to shareholders and filed with the Securities and Exchange Commission, the company, over a period of more than two years, responded to and analyzed numerous inquiries from parties interested in acquiring or making an investment in the company," the statement read.

The company said a special committee of independent directors reviewed and negotiated proposals. The company also had employed the financial advisory firm of Houlihan Lokey Howard & Zukin.

"Ultimately, the transaction with Investcorp at $12 cash per share was viewed by the board and the special committee to be in the best interests of the company and its shareholders," Dave & Buster's statement said.

The company said the board and its committee "considered, among other factors, the company's current cash position and liquidity needs, the terms, cost and maturity of its existing credit arrangements and the uncertainty as to whether sufficient debt or equity financing would be available on terms favorable to the company that would enable the company to meet its growth objectives if it were to continue under its current capital structure as a publicly held corporation."

The chain operator added that its agreement with Investcorp contained "customary 'fiduciary outs,' which enable [Dave & Buster's] to accept a superior proposal from any third party that may materialize prior to closing."