Rhone Bid For Fogo De Chao Is A 'Best And Final Offer,' Says Wells Fargo

Fogo De Chao Inc (NASDAQ: FOGO) announced Tuesday it accepted a $15.75-per-share take-private bid from Rhone Capital — an offer that's "highly unlikely" to receive third-party competition, according to Wells Fargo. 

The Rating

Analyst Jeff Farmer downgraded Fogo de Chao from Outperform to Market Perform but raised the price target from $14 to $15.75.

The Thesis

The all-cash transaction values Fogo de Chao around $560 million with the transfer of $143 million in debt. At the time of the offer, the figure represented a 25.5-percent premium to Fogo’s stock price and a valuation nine times Wells Fargo’s 2018 estimates for earnings before interest, taxes, depreciation and amortization.

Farmer anticipates no competing bids, particularly considering Rhone’s historically quick pace to close deals, its secured financing and its support from Thomas H. Lee Partners, which owns 60 percent of Fogo stock. (See the analyst's track record here.)

The deal is expected to close in the second quarter, and until then, Farmer said he expects Fogo to profit from tax reform windfalls and the ability to repatriate cash from Brazil.

Price Action

Fogo de Chao shares were trading marginally higher around $15.60 at the time of publication Wednesday afternoon after rallying Tuesday on news of the Rhone Capital bid. 

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