Ruby Tuesday revealed Monday that it turned down an offer it received from another suitor on December 12, and that it plans to close on its deal with NRD Capital this Thursday.
The offer, which Ruby Tuesday called a “highly conditional and not fully financed proposal,” came from The Boaz Group, LLC, and was actually higher than its NRD Capital agreement.
Boaz offered to purchase all of the outstanding shares of common stock of Ruby Tuesday for $2.88 per share, or 20 percent more than the $2.40 on the table from NRD Capital. Shareholders would have grabbed another $30 million if Ruby Tuesday accepted. But the casual dining company said Boaz, which was a participant in Ruby Tuesday’s strategic review process, “had failed on multiple occasions to produce an actionable proposal despite having been provided with ample time and opportunity to do so.”
Ruby Tuesday said its board of directors evaluated Boaz’s proposal, sought clarification from the company, and then unanimously determined that “the proposal did not constitute and would not reasonably be expected to lead to a superior proposal as compared to the acquisition by NRD Capital and therefore rejected the proposal.”
On August 14, prior to Ruby Tuesday’s entry into exclusivity with an affiliate of NRD Capital, Ruby Tuesday said it agreed to waive Boaz’s obligations under the standstill provision of its confidentiality agreement to the extent necessary to allow Boaz to submit unsolicited confidential proposals for purchase.
“However, despite the many opportunities that Ruby Tuesday had provided Boaz to produce an actionable proposal, Boaz had repeatedly disappointed by submitting proposals that in each case lacked a credible financing plan. The new proposal continues to contain many of the same deficiencies that led the board of directors to reject the earlier proposals from Boaz,” Ruby Tuesday said.
The main issue, Ruby Tuesday said, was that Boaz failed to provide evidence of credible financing sufficient to fund the acquisition. Ruby Tuesday said its board of directors decided that the risk of delaying the NRD Capital acquisition, while lower in price, “significantly outweighs any benefit that may be achieved by further engagement with Boaz.”
Ruby Tuesday said Boaz submitted six highly conditional acquisition proposals during its strategic review process, none of which contained committed financing. Ruby Tuesday kept asking for Boaz to provide a fully financed proposal. The NRD Capital deal will take the struggling brand private in a deal valued at $146 million. The $2.40 per share cost is a 37 percent premium over Ruby Tuesday’s closing price on March 13, the day before the company said it would explore strategic alternatives. NRD Capital, a franchisee-sponsored and managed equity investment fund, has a majority stake in 90-unit brand Fuzzy’s Taco Shop and owns Frisch’s Restaurants Inc. The deal values Ruby Tuesday at $335 million, including debt. Ruby Tuesday, which has closed more than 100 restaurants over the past year, has posted revenue declines year-over-year for the past five years, and has reported a net loss for nine consecutive quarters.
Ruby Tuesday’s stock was trading a touch over NRD’s offer Monday morning. Some have called for Ruby Tuesday’s purchase price to rise in light of its more recent stock performance. In November, claiming that the deal “significantly undervalues” Ruby Tuesday, a proposed class of Ruby Tuesday Inc. shareholders filed suit against the company and its impending sale in Tennessee federal court. The class action claims that Ruby Tuesday and its directors violated the Securities Exchange Act of 1934. An inadequate and unfair negotiating process breached the organization’s fiduciary duties.