Goodbye (Public) Ruby Tuesday
NRD Capital is set to take Ruby Tuesday private in a deal that values the storied casual diner at $335 million.
The deal was essentially the best possible outcome for shareholders of Ruby Tuesday (NYSE: RT). At $2.40 a share, it was an 18-cent premium to the 200-day average and a 37 percent premium to March 2017, when the management team announced it was seeking “strategic alternatives.”
“The Board of Directors and our advisors have thoroughly evaluated all options available to the Company and are confident that this agreement will provide the most promising opportunity to realize the highest value for our stockholders while providing the best path forward for the Ruby Tuesday brand, its employees, franchisees, and loyal customers,” said Stephen Sadove, non-executive chairman of Ruby Tuesday in a press release. “NRD Capital has a distinguished track record of achieving and maintaining profitable growth for restaurant concepts and will be an excellent partner to lead Ruby Tuesday going forward.”
NRD Capital has a track record for investing in companies that need a little polish. It acquired the 74 Frisch’s Restaurants in August for $174.5 million. But at 541 locations (58 franchised) and with freefalling traffic, the Ruby Tuesday deal will require a lot of work. The work that will be required in the coming years meant a big discount for NRD. For that $335 million, the new parent organization gets $583 million in property and equipment assets that Ruby Tuesday has on the books as of August.
Aziz Hashim, who recently completed his second fund, said NRD Capital is the ideal partner for the opportunities ahead.
“Our focus at NRD is investing in quality restaurant companies and providing strategic and operational expertise to create sustainable value. With a well-established brand, differentiated from other casual dining restaurants by its Garden Bar, we see significant opportunities to drive value for Ruby Tuesday,” said Hashim, in a press release. “We are excited to be part of the Company’s next chapter. As a private company, we will be able to take a long-term view on Ruby Tuesday, allowing us to make an investments in people, product, and customer experience, without public company constraints. This approach will enable us to reward everyone involved in our success, in addition to our investors.”
The acquisition comes after more than 15 years of work to stabilize traffic and bring guests back.
The company rose to success with casual dining peers like TGI Fridays and Applebee’s when it was founded by Sandy Beall in 1972. But it wasn’t immune to the slowdown in casual dining. In 2002, it reported slowing traffic and made efforts to bring guests back including national advertising and discounting. Since then, it did all the typical things a restaurant brand does when it’s in trouble. It shed non-core brands, it bought stock and it brought in a stream of new executives—still, traffic fell.
One success was a major renovation program in the back half of 2006. The program was just in time for the Great Recession, and not an ideal time to push the investment. Despite some slow success, the rebranding program was halted after just 13 company locations were updated.
“Since the completion of the reimage, we have seen mid-single-digit increases in same restaurant sales at those locations,” said CEO Jim Hyatt in an August earnings call. “Now, as we are in the review, the strategic alternatives and we assess the results of these two test markets, our remodeling program remains on temporary hold.”
In that same earnings report, the company announced it had shuttered 95 locations that didn’t meet requirements for the “Asset Rationalization Plan.” In the last 10 years, the company shrank from 680 company and 154 franchised locations in 2007 to 541 company and 58 franchised locations.
Where Ruby Tuesday goes next is anyone’s guess. While it’s not goodbye to the brand, it’s goodbye to a restaurant stock that mirrored the incredible lifecycle of casual dining. It rose meteorically through the '90s to a peak in 2006 before crashing back to earth in spectacular fashion.
Davis Polk is serving as legal advisor to Ruby Tuesday. Cheng Cohen is serving as legal advisor to NRD and Arlington Capital Advisors is serving as financial advisor to NRD.