Will Morton's Steakhouse Be a Five Star Acquisition?

Last Friday, private investor Tilman Fertitta announced a tender offer for Morton's Restaurant Group MRT at $6.90 per share, which is a 34% premium to Thursday's close. The investor is notorious for his interest in the food service industry, as he has bought out other prominent restaurant groups such as McCormick & Schmick's. The purchase was made through Fertitta's Landry Inc. subsidiary. Fertitta seeks to refresh the company's restaurants and product offerings. The transaction will be conducted with all cash and take place as a merger. Fertitta had already owned 5% of the company before making the offer. "Morton's is one of the most recognizable high end steak brands in the world," added Fertitta. "They are a dominant operator in the high end steak category. Guests will continue to receive exceptional food and service, and we plan to introduce new food items and expand our culinary offerings." Morton's was initially founded as a high end steakhouse with a retro café décor which appealed to many businessmen at the time. The company generates nearly 80% of its revenue from expense accounts, with an emphasis on beef and high end wine sales. However, the company has faced increasing competition from local steakhouses as well as softening sales as businesses look to cut back on unnecessary expenses. Morton's recently introduced a Happy Hour with lower priced appetizers and will continue to add more value priced items in an effort to widen its consumer base. Morton's has struggled to increase revenue in the wake of these difficulties, and has cited the rising cost of beef as a primary reason for its shrinking margins. The company has closed several underperforming restaurants and will focus primarily on its current locations to generate growth, rather than opening new ones. Cowan & Co. analyst Paul Westra stated, "This transaction is well suited for Morton's as the company will be best positioned to refresh the store base as a private company." The company had originally announced in March that it was seeking strategic alternatives. Some analysts predicted that a deal would take place, given the large number of private equity restaurant transactions that have occurred over the past few years. The company's biggest stockholder Castle Harlan owns a 27.7% stake in the company and announced that it would tender its share as part of the transaction. Fertitta is devoted to the restaurant industry and has a lot of ideas on how to modernize Morton's. While investors won't be able to profit directly from the stock given the announcement, they may have other options to grow their portfolios with the restaurant industry, and enjoy a better meal in the process.