CBRL ( CBRL) will use bank financing to repurchase nearly 40% of its outstanding stock, throwing its hat in with a handful of other companies that have recently embraced leverage as a way to support common shareholders. CBRL, which operates Cracker Barrel stores, said the stock will be repurchased through an $800 million Dutch auction tender that is expected to begin next month. Such buybacks allow shareholders to tender stock within a range of prices, with the company choosing the lowest per-share price at which it can repurchase the specified total. The company didn't name the range in which it is willing to buy back the stock. CBRL closed Thursday at $44.30 and was trading up $1.95, or 4.4%, to $46.25 on Instinet. The company's market capitalization is currently about $2.1 billion. To effect the auction, CBRL said it has a $1.25 billion financing commitment from Wachovia, consisting of an $800 million bank loan, a $250 million revolving credit facility, and a $200 million delayed draw term loan. "Although the plan represents significant new indebtedness on the part of the company, we believe that the cash flow from our Cracker Barrel Old Country Store concept will continue to be strong and more than sufficient to service the debt and finance Cracker Barrel's continued expansion," it said. "Furthermore, the committed financing retains our substantial ownership of real estate, preserving continued underlying financial strength, stability and flexibility." Similar plans have recently been adopted by AutoNation ( AN) and Affiliated Computer ( ACS) and are being pushed by hedge fund activists at Phelps Dodge ( PD).
"The plan provides balance between short-term and long-term investment goals for shareholders," CBRL said. "Those shareholders who have seen the value of their shares increase and who wish now to realize that value will have an opportunity to do so by participating in the modified Dutch auction tender offer. At the same time, those shareholders who have longer-term goals of continued ownership can participate in the future performance of the Company, including the potential benefit from the reduced number of shares outstanding after the tender offer and the growth in value to be expected in future years as debt is paid down." The repurchase is part of a strategic review that will also see CBRL selling its Logan's Roadhouse segment to the public through an offering that should close by Sept. 30. The amount of stock to be sold in the deal has yet to be determined, the company said.