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Filed under: Miscellaneous
I haven’t seen any new information that would incite the recent drop in price, and maybe that is the explaination. Perhaps the market is concerned that because there has not been a DEF14A and a certain date set for the shareholder meeting, that LNY will now need to meet the EBITDA thresholds in the financing committments for the quarter ending 9/30. This simply adds risk to the transaction.
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Yes, that is the same number I calculate for required EBITDA. It is, however, a two part test for resturant and gaming operations so it is possible to exceed $45mm and still miss on the financing threshold test. EBITDA for September 30, 2007 was $43mm. Whether they will make this number or not I won’t even try to guess, but I have no reason to believe it will be drastically lower. For me personally, the important backdrop here is motovation. Clearly, Fetitta is very insired to see this completed as he seems to have had enough of being public. As far a the lenders go we need to ask: “Are the lenders looking for and excuse to get out of their committment?”. If they are, a drop in EBITDA is a perfect excuse to walk. Given that the lenders agreed to fully underwrite the deal just recently when overall market credit issues we old news leads me to believe that a drop in EBITDA will be use as an excuse to renegotiate terms, rather than running from the deal. In that case the deal survives (and hopfully at a price of 21). Of course something unanticipated could occur that would threaten the deal but as of now the above seems the most probable outcome to me.
I have a long position in LNY.
w
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I haven’t changed anything with the Landry’s position, except that I would increase the F Wall Street position back up to 20%. Financing is in place from Jefferies & Company and Wells Fargo Foothill. If it were Lehman and Merrill, I might worry more.
The price action means nothing without a SEC filing or news release. We went through this with RTSX — and will see it a ton on these small deals. In RTSX, the price dropped from $30 to $25, or nearly 17%, in the weeks leading up to the shareholder meeting.
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After watching this video it is clear that LNY’s boardwalk operations in Kemah, TX will be out for a while. I wonder about LNY insurance coverage for damages and interuption of business.
As far as the merger is concerned, my first reaction is the risk that financing could be held up or cancelled due to a Material Adverse Effect as defined in the debt agreement. Here is the definition from the 6/17/2008 merger filing:
%u201CMaterial Adverse Effect%u201D means any event, development, change or circumstance (any such item, an %u201CEffect%u201D) that, either individually or in the aggregate, has caused or would reasonably be expected to cause a material adverse effect on the condition (financial or otherwise), results of operations, assets, liabilities (contingent or otherwise), properties, solvency, business, management or material agreements of the Company and its subsidiaries taken as a whole, except in each case for any Effect resulting from, arising out of or relating to any of the following, either alone or in combination: (A) any change in or interpretations of GAAP or any applicable Law, including Gaming Laws and Liquor Laws; (B) any change in interest rates or general economic conditions (i) in the industries or markets in which the Company or any of its subsidiaries operates, (ii) affecting the United States or foreign economies in general or (iii) in the United States or foreign financial, banking or securities markets, in each case which changes do not affect the Company and its subsidiaries to a materially disproportionate degree; (C) any natural disaster or act of God; (D) any act of terrorism or outbreak or escalation of hostilities or armed conflict; (E) the public announcement or pendency of this Agreement or the consummation of the Transactions, including (i) the identity of the acquiror, (ii) any delays or cancellations of orders, contracts or payments for the Company%u2019s products or services, (iii) any loss of customers or suppliers or changes in such relationships or (iv) any loss of employees or labor disputes or employee strikes, slowdowns, job actions or work stoppages or labor union activities; (F) any shareholder or derivative litigation arising from allegations of a breach of fiduciary duty relating to this Agreement or the Transactions; (G) changes in the share price or trading volume of the Company Common Stock or the failure of the Company to meet its projections or the issuance of revised projections that are more pessimistic than those in existence as of the date of this Agreement; (H) any increase in the cost or availability of financing to Parent or Merger Sub; (I) the taking of any action expressly provided by this Agreement or consented to by Parent or Merger Sub; or (J) any action or omission of the Company or any of its subsidiaries taken at the direction of Fertitta outside the ordinary course of business and not approved by the Special Committee if then in existence or otherwise by resolution of a majority of Disinterested Directors.
If I read this correctly (I am not a trained laywer) it appears that there is a specific carve out for “(C) any natural disaster or act of God”. If so longs should breath a little bit easier, but I am scratching my head as to why this event would not be considered Material.
Joe- would you please read the MAE and let me know if you agree with my interuptation?
Best,
wk
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G) “changes in the share price or trading volume of the Company Common Stock or the failure of the Company to meet its projections or the issuance of revised projections that are more pessimistic than those in existence as of the date of this Agreement;”
Based on this can’t Fertitta walk or renegotiate just based on the recent drop in share price?
What do you think?
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Hey Wayne,
Looking at this article:
“Over the summer, Fertitta reached an agreement with his board to take his company private for about $415 million, pending shareholder approval.
According to the terms, Fertitta %u2014 who owns 39 percent of the company %u2014 would pay $21 a share.
Fertitta said he still wants to buy Landry’s, but he wouldn’t get specific on how recent events might affect the sale.
On Tuesday, Landry’s stock closed at $13.52.
“This isn’t the same company it was when I made the offer,” he said.”
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It seems like the offer price could come down a bit. I don’t know what the legal route for that would be, but it does seem like the market is pricing the stock in anticipation of the offer being altered or rescinded.
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http://www.chron.com/disp/story.mpl/business/6006120.html
Be sure to read the last line in the story.
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Mark,
in the document, your point G) is another exception in the defintion of %u201CMaterial Adverse Effect%u201D:
%u201CMaterial Adverse Effect%u201D means any event, development, change or circumstance (any such item, an %u201CEffect%u201D) that, either individually or in the aggregate, has caused or would reasonably be expected to cause a material adverse effect on the condition (financial or otherwise), results of operations, assets, liabilities (contingent or otherwise), properties, solvency, business, management or material agreements of the Company and its subsidiaries taken as a whole, except in each case for any Effect resulting from, arising out of or relating to any of the following, either alone or in combination: …
What it means for the agreement I do not really understand.
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Very hard. Funny thing is that I know the definition of all the words, but when put together it becomes Greek.
I must say however that the latest SEC filing was easy to read and didn’t sound all that bad. According to the article Matt referenced the areas affected are only 25% of the whole company, and of that only a small portion had significant damage, and on top of that insurance will cover probably a big portion of it. Too optimistic?
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I just saw the shareholders meeting get set for LNY. The filing still indicates the $21 price. I remember a post around here somewhere saying that this “setting of the shareholder meeting date” is usually a good final point to look for in these workouts. I could be way off base, but what are folks opinions about LNY now?
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Any individual Workout can go bad and you can lose a lot of money. That’s why I always say people should generally keep Workouts to no more than 20% of the portfolio. Overall, Workouts — taken as a whole over the course of many opportunities — can provide wonderful returns, especially in times of flat or falling markets.
That said, the shareholder meeting has been set. We’re just waiting for the definitive proxy to be filed and sent to shareholders. Shareholder approval is all but guaranteed; so, the only thing left to really upset the applecart would be a renege on the financing or some other major catastrophe.
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Any lawyers out there able to translate this into American English:
“As part of a compromise that was reached among the Company, Fertitta and Jefferies Funding, LLC, Jefferies & Company, Inc., Jefferies Finance, LLC and Wells Fargo Foothill, LLC (the “Lenders”), the Lenders agreed under their amended debt financing commitment and Fertitta agreed under the amended merger agreement that they would not claim that a material adverse effect had occurred as a result of the occurrence of any event known to them through the date of execution of the amended financing commitment and the amended merger agreement, respectively.”
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Never mind. It’s working again. Thanks all!
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