Major Shareholder Again Blocks Proposed Sale of Rainforest Cafe


Shareholders of troubled theme restaurant chain Rainforest Cafe Inc. could have sold their company for $5.23 a share in February, but a major shareholder blocked the deal.

Now, the same bidder--Landry’s Seafood Restaurants--is back with another offer for Rainforest, this time for just $3.25 a share. The Rainforest board thinks the new bid is fair. But the same major shareholder, the State of Wisconsin Investment Board, still isn’t willing to let go of its shares.

“I am furious. I can’t believe they’re doing this again,” said John Nelson, investment director of small-company stocks for the Wisconsin board, which invests pension money for the public employees and retirees of the state.

“We plan to oppose the merger. We think the price being offered is an outrage to shareholders,” Nelson said.

The latest cash bid by Landry’s, unveiled Tuesday, values Rainforest at about $75 million. The February offer was worth $125 million.


The news sent Rainforest stock (ticker symbol: RAIN) surging $1 to $3.03 on Nasdaq. Landry’s (LNY) eased 6 cents to $7 on the New York Stock Exchange.

Rainforest, based in Hopkins, Minn., operates or licenses 29 restaurant/retail facilities and 12 international restaurants. The rainforest-themed restaurant was a hit for a couple of years in the mid-1990s, and the stock once traded as high as $25 a share.

But over the last year the company has suffered slumping sales. The cash-needy company now says it might have to close as many as 20 sites if it stays independent.

In the second quarter ended July 2, sales at Rainforest stores open at least 18 months were down nearly 13% from a year earlier, Rainforest said in August. Performance by the company’s mall stores was even worse, down 19%.

Landry’s, the nation’s second-largest seafood chain, operates casual-dining seafood restaurants under such names as Joe’s Crab Shack, Landry’s Seafood House and the Crab House.

Rainforest’s board said Tuesday it views the lower Landry’s offer as fair given the deterioration of the firm’s business since February.

But the Wisconsin board, which owns 13% of Rainforest stock, vehemently disagrees. “They expect shareholders to go along with it because it’s a premium off of a lower stock price,” Nelson said.

He said the board was still determining what course it would take in fighting the latest bid. Among the options were soliciting shareholders or going to court to have a judge determine the fair value of the company.

If the court determines the company’s value is above what is being offered, under Minnesota law the acquiring company must pay shareholders the value determined by the court, Nelson said.

Rainforest, in a statement Tuesday, said that “while we appreciate the [Wisconsin board’s] enthusiasm for Rainforest shares, [the board] has not brought or suggested any alternatives since it opposed the prior merger proposal, which was subsequently followed by a 50% decline in the price of the shares.”


No Rainbow

Rainforest Cafe went public at $6 a share (adjusted for splits) in 1995, and enjoyed a couple of years of success before seeing sales crumble.


Quarterly closes and latest for Rainforest Cafe (ticker: RAIN) on Nasdaq

Tuesday: $3.03, up $1.00


Source: Bloomberg News