Ruth's Serves up Noncore Assets to Houston-based Landry's

Ruth's Chris Steak House owner Ruth's Hospitality Group Inc. (RUTH) said Monday that it agreed to sell its Mitchell's brand to Houston-based Landry's Inc. for $10 million.

The transaction includes the Mitchell's Fish Market along with the Mitchell's Steakhouse and Cameron Steakhouse chains. The target operates 21 company-owned restaurants, consisting of 18 seafood restaurants and three steakhouses mostly in Florida and in the Midwest.

The sale will allow Ruth's to focus on its core Ruth's Chris Steak house brand and will compliment Landry's portfolio of upscale steakhouses and seafood restaurants that includes Morton's Restaurant Group Inc. and McCormick and Schmick's Seafood Restaurants Inc., among others.

"While the Mitchell's restaurants continue to be profitable and generate positive cash flows, the sale of these restaurants will enable us to direct all of our resources toward the continued growth and expansion of our flagship Ruth's Chris Steak House brand," said Ruth's CEO Michael O'Donnell in a statement.

Ruth's acquired the brands from privately held Cameron Mitchell Restaurants LLC of Columbus, Ohio, in February 2008 for about $92 million.

"It had become increasingly difficult to see the long-term growth path of Mitchell's within [Ruth's]," Jefferies LLC analyst Andy Barish wrote in a Monday research note. "We believe this transaction makes sense and allows management more focus on growing the Ruth's Chris brand."

Ruth's Chris operates more than 140 franchised and company-owned restaurants worldwide. The company plans to open at least three company-owned restaurants within the next year and it is also seeking additional franchisees.

Mitchell's has been struggling to grow. The target closed two underperforming restaurants earlier this year.

A person familiar with Ruth's strategy said Ruth's Chris will remain the company's only core brand after completion. The person said Ruth's won't be making additional divestitures anytime soon.

Winter Park, Fla.-based Ruth's is not the only steakhouse chain that is looking to divest noncore brands.

Earlier this month, Tampa, Fla.-based Outback Steakhouse operator Bloomin' Brands Inc. (BLMN) said that it seeking buyers for its Roy's chain. Industry sources pointed to Landry's as a logical bidder for Roy's, but a Landry's spokeswoman said the company has no interest in the target.

The last notable acquisition Landry's made was in June 2013 when it acquired upscale steakhouse and seafood restaurant operator Mastro's Restaurants LLC from New York private equity firms Kinderhook Industries LLC and Soros Strategic Partners LP for undisclosed terms. That same year, Landry's made a $71 million unsolicited bid for New York's Ark Restaurants Corp., which Ark rejected as too low.

Landry's has been one of the most active restaurant acquirers in the last few years. Aside from Woodland Hills, Calif.-based Maestro's, the company acquired both Morton's and McCormick & Schmick's in 2011 for $117 million and $137 million, respectively.

In addition to restaurants, Landry's, led by Tilman Fertitta, also owns the Golden Nugget casino chain.

Ruth's and Landry's expect to close the transaction in the 2015 first quarter. There is a $1.5 million termination fee if either company decides to call the deal off.

Neither Landry's nor Ruth's returned calls on Monday. North Point Advisors LLC advised Ruth's.

Ruth's shares were trading 4.4% higher, to $12.91, on Monday afternoon, giving it a market capitalization of around $441 million.

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