Private Equity Places Takeout Order for P.F. Chang's

NEW YORK ( TheStreet) -- P.F. Chang's China Bistro ( PFCB), the popular Asian-themed restaurant chain adorned with replica murals of 12th century China and sculptures that imitate the nation's Forbidden City, has agreed to sell itself to Centerbridge Partners in a private equity buyout valued at $1.1 billion, or $51.50 a share in cash.

The deal will net P.F. Chang's a near 30% premium to its share price at Monday's close, representing the culmination of a share recovery in the restaurant chain's stock after recent M&A speculation. Shares are now up 66% year-to-date. Market chatter about a deal for P.F. Chang's increased as the underlying performance of the company weakened on falling sales, profitability and traffic. Once taken private, the Scottsdale, Ariz.-based company will look to strengthen the financial performance of its flagship restaurants, and its affiliated chains, which include the Pei Wei brand.
A private equity take out of P.F. Chang's may be just what the restaurant chain needs to change its fortunes.

P.F. Chang's, which was founded roughly 20 years ago, offers sit-down Chinese and Pan-Asian cuisine at casual dining price points. The company is based in the U.S. butsells licensing agreements abroad. As of the January 1, the company owned and operated 204 P.F. Chang's and 170 quick-casual Pei Wei restaurants, spread across the U.S, as well as 16 restaurants in Mexico, the Middle East -- Kuwait City and Dubai -- and Puerto Rico, which operate under development and licensing agreements.

"We are confident that being a private company will provide us with greater flexibility to focus on our long-term strategic plan of elevating our guest experience, enhancing our value proposition, growing traffic and improving the performance of our brands," Richard L. Federico, CEO of P.F. Chang's, said in a release.

Centerbridge's buyout offer for P.F. Chang's , which is expected to close by the end of the third quarter, needs to be approved by at least roughly 83% of the company's shareholders. Under the terms of the deal, the company may seek a better offer during the next 30 days.

PF Chang's shares were trading slightly above the offer price at $51.61 in early trading on Tuesday; its highest share prices in more than a year, and on top of a 30% rise on the recent M&A chatter.

In the first quarter, revenue rose to $318.9 million, from 2011 levels, while profit narrowed to $6.3 million. Same store sales at stores open more than a year fell 0.6% at P.F. Chang's and 1.7% at Pei Wei in the first quarter. Those earnings represented a 42% drop in first-quarter profit, missing Wall Street expectations, partly due to higher operating and food costs.

Still, in spite of the company's waning revenue and profitability, P.F. Chang's may make for an ideal private equity turnaround. The company generates substantial free cash flow that has grown in recent years. Meanwhile it recently pared its debt to $111 million from $130 million, a year ago.

Goldman Sachs and DLA Piper are advising PF Chang's on its sale, while Wells Fargo Securities, Deutsche Bank Securities and law-firm Weil, Gotshal & Manges are advising Centerbridge.

-- Written by Antoine Gara in New York.