The Landry’s debacle

Landry's logo_ There are bad stock plays and there are horrible stock plays. And then there is Houston-based Landry’s Restaurants, Inc.

This story began back in July of 2007 when the company announced that it was delinquent in its regulatory filings with the SEC and that it was in need of refinancing over $400 million in debt in a rapidly deteriorating debt market. Shortly thereafter, the company sued some of its bondholders for declaring the company in technical default under their bonds, but the company quickly settled that litigation on not particularly good terms.

A few months later, Landry’s announced in January 2008 that its CEO and major shareholder (39%), Tilman Fertitta, had made an offer to take the company private by buying the other 61% of the company’s stock for $23.50 share, which worked to be a $1.3 billion deal, including debt.

Given the circumstances, that offer sounded pretty good, particularly given that the proposed purchase price was a 40% premium over the $16.67 share price at the time of the offer.

Unfortunately, a spate of shareholder lawsuits followed Fertitta’s bid. By early March, 2008, it was apparent that Fertitta’s bid was so speculative that he hadn’t even lined up financing for it.

So, in April of 2008, Fertitta lowered his offer to $21 per share because of "tighter credit markets", and Landry’s announced that it had accepted that price in June.

But by the fall of 2008, the financial crisis on Wall Street had roiled credit markets even further and Hurricane Ike caused considerable damage to several Landry’s properties.

So, in October of 2008, Fertitta lowered his offer to $13.50 per share.

Then, in mid January of 2009, Landry’s announced that it was terminating the proposed deal with Fertitta. The reason was a bit convoluted, but here is the gist of it.

Landry’s contended that the SEC was requiring the company to issue a proxy statement disclosing information about a confidential commitment letter from the lead lenders on the buyout deal. However, Landry’s was negotiating with those same lenders to refinance the bond indebtedness that the company promised to refinance in connection with October, 2007 litigation settlement with its bondholders noted above. Inasmuch as the lenders’ commitment for financing Fertitta’s buyout required that the terms of the commitment remain confidential, the company elected to terminate the buyout rather than risk that the lenders would declare a default for breach of confidentiality and back out of the financing commitment as well as the negotiations on refinancing the bond indebtedness.

Amidst all this, Landry’s stock was tanking, closing at under $5 per share.

Meanwhile, while the take-private bids languished and the company’s stock plummeted to historic lows, Fertitta continued to buy more Landry’s stock so that he now controls somewhere in the neighborhood of 55% of the company’s shares.

Yes, that’s right. Despite a series of unsuccessful take-private offers over a year and a half, Landry’s board failed to obtain a standstill agreement from Fertitta that would have prevented him from taking a majority equity position while Landry’s stock price was tanking.

So, given all of that, how could Fertitta and the Landry’s directors screw things up any worse?

How about proposing yet another deal in which Fertitta would buyout Landry’s other shareholders in return for giving them an equity stake in a publicly-owned spin-off (Saltgrass Steakhouse) in a brutally competitive niche of the restaurant market?

Prediction: This is not going to turn out well.

Innovative teaching

Ritter Bunker Having been raised by one, I’ve always been drawn to great teachers wherever I find them.

Jeff Ritter is a young golf teaching professional in the Phoenix area who combines excellent analytical ability with formidable communication skills to provide some of the best golf swing instruction that I’ve seen on the Web.

In this 10-minute video, Ritter shows how, over the course of a week, he improves the swing of a low-handicap amateur golfer who had come to Phoenix to work with him. In so doing, Ritter takes a good golf swing and turns it into a very good one.

Here are some more Ritter teaching videos, generally 1-3 minutes in length, that focus on various aspects of the golf swing. This is a wonderful example of how a talented teacher is using the Web in innovative ways to reach thousands of students who would not otherwise have access to his insight.

Some other sites in which to discover great teachers:

Top 7 Places to Watch Great Minds in Action

100 Incredible Lectures from the World’s Top Scientists

One Day University

Understanding storytelling

Story telling graph When young attorneys ask me how they can become more effective advocates in the courtroom, I usually tell them: "Become better at telling stories."

Several years ago, Derek Sivers interviewed the late Kurt Vonnegut, who was no slouch as a storyteller. Check out Vonnegut’s views on story-telling, which he believed promotes the need for drama in people’s lives.

Essential reading for anyone who seeks to persuade.

Love at the Five and Dime

Born in Seguin and now of Austin, the great Texas singer-songwriter, Nanci Griffith.

Confession and Avoidance

As our own country confronts the difficult issues involved in conducting war, it seems appropriate to recall the closing defense argument in one of the all-time great lawyer movies, Breaker Morant.

Crunchy excellence

Continuing on the thread of creative advertising, check out this brilliant series of Cinnamon Toast Crunch commercials by McCann Erickson/Campbell Mithun.

 

A great interview

Anything that happens in U.S. Open tennis over the Labor Day weekend is unlikely to match this hilarious post-match interview of Andy Roddick during the 2007 Australian Open after Roger Federer had defeated him in particularly dominating style.

An illusion of safety, but at what cost?

security_line The only two airline-security measures that really matter — fortified cockpit doors and the awareness of the flying public as to what a hijacking can mean — have been in place virtually since the attacks of September 11, 2001.

Nevertheless, as Patrick Smith explains, the wasteful airport security process that we have allowed the Transportation Security Administration to impose on us continues unabated at a substantial direct cost and an even greater indirect one.

It’s bad enough that the TSA’s procedures do virtually nothing to discourage serious terrorist threats. But what’s even worse is that the incompetent inspection process is really just "security theater" that makes a few naive travelers feel safer about airline travel.

And if all that weren’t bad enough, the worst news is that once a governmental "safeguard" such as the TSA procedures are adopted, Congress is not interested in dismantling it even when it’s clear that process is ineffective, expensive and obtrusive to citizens.

Smith sums up the dilemma well:

The novelty of the Sept. 11 attacks notwithstanding, the primary threat to commercial planes is, was and shall remain the smuggling aboard of explosives, which is what happened on Pan Am 103 [the Lockerbie explosion twenty years ago whose instigator was recently set free]. The bomb came onboard in a suitcase. The hijack paradigm changed forever on 9/11, rendering the inflight takeover concept unworkable for a terrorist. .   .   .

Yet whether by virtue of incompetence or willful ignorance, TSA continues to waste untold time and untold millions of dollars on a tedious, zero-tolerance fixation with blades and sharps. This does nothing to make us safer, and in fact draws security resources away from worthy pursuits.

Yes, TSA scans most bags for explosives. Mandates were put in place after 9/11 that have greatly increased the percentage of bags that are run through high-tech detectors, with a goal of screening all of them. But eight years later, screening is still not fully comprehensive. It does not yet include 100 percent of luggage and cargo, and procedures remain inadequate at many overseas airports from which thousands of U.S.-registered jetliners depart each week. Neither is there widespread screening for explosive materials that somebody can carry on his or her person. Good luck getting a hobby knife through a concourse checkpoint, while a pocket full of Semtex is unlikely to be noticed.   .   .   .

There is a level of inherent risk that we simply must learn to accept. But, if we are going to have an airport security apparatus, and if we are going to devote millions of tax dollars to the cause of thwarting attacks, can we please do it smartly and at least improve our odds? Am I the only one who finds it maddening, and even a little scary, that we can’t get this right? Is it not a national disgrace that TSA should spend its time confiscating butter knives from uniformed pilots rather than focusing on deadly threats with a long historical precedent?

Where are the voices of protest? As I’ve said before, the airlines ought to be speaking out and pressuring TSA to revise its policies. I know it puts them in a tough spot, liability-wise — carriers don’t want to be perceived as opposing security, even when that security isn’t helpful — but much of what people despise about flying pertains to the TSA rigmarole.

And passengers, for their part, are apparently content with, or at least resigned to, the idea of security theater in lieu of the real thing. Indeed, rather than demand or expect change, hundreds of thousands of Americans have paid good money for the chance to simply circumvent the hassle of TSA.

Food for thought as Congress considers the creation of an even larger governmental apparatus as the "solution" to problems in the U.S. health care finance system.

Tecumseh Valley

The incomparable Nanci Griffith sings a classic song by the late, great Texas songwriter, Towne Van Zandt.

County Fair, L.A. style

Yet another example of how commercials (see earlier examples here) are providing some of the most creative product on television(H/T Glenn Reynolds ):