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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO SCHEDULE 14D-9
ON
SCHEDULE 14D-9/A
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
MORRISON RESTAURANTS INC.
(NAME OF SUBJECT COMPANY)
MORRISON RESTAURANTS INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, $.01 PAR VALUE
AND THE ASSOCIATED RIGHTS TO PURCHASE
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
(TITLE OF CLASS OF SECURITIES)
-----------------
618414 10 1
(CUSIP NUMBER OF CLASS OF SECURITIES)
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DOLPH W. VON ARX
CHAIRMAN OF THE BOARD
MORRISON RESTAURANTS INC.
3300 HIGHLANDS PARKWAY
SUITE 130
ATLANTA, GEORGIA 30082
(770) 308-3700
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF
THE PERSON(S) FILING STATEMENT)
----------------------
COPY TO:
GABRIEL DUMITRESCU, ESQ.
POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
SIXTEENTH FLOOR
191 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30303
(404) 572-6600
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This 14D-9/A is filed by Morrison Restaurants Inc., a Georgia
corporation (the "Company") to amend Item 4 of the Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") filed on April 29, 1998
relating to the common stock, $.01 par value per share (the "Common Stock") of
the Company, including the associated rights (the "Rights") to purchase shares
of Series A Junior Participating Preferred Stock, $.01 par value per Share, of
the Company issued pursuant to the Rights Agreement dated as of March 2, 1996,
as amended and supplemented, between SunTrust Bank, N.A., as Rights Agent (the
Common Stock and the Tights together are referred to herein as the "Shares"). In
accordance with Rule 12b-15 promulgated under the Securities Exchange Act of
1934, as amended, the complete text of Item 4 and Item 9 as amended follows:
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
FOR THE REASONS OUTLINED BELOW, THE BOARD OF DIRECTORS UNANIMOUSLY
DETERMINED THAT THE OFFER AND THE MERGER, CONSIDERED AS A WHOLE, ARE FAIR TO AND
IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT THE COMPANY'S SHAREHOLDERS TENDER THEIR SHARES IN THE OFFER.
The Company's business has been negatively affected during the last three
fiscal years and the first nine months of the current fiscal year by declining
customer counts. The Company believes that this trend was largely caused by
over-building and increased competition in the restaurant industry and by a
general decline in mall traffic, where the Company operates a majority of its
units. In addition, beginning in fiscal 1997, the Company's business was further
negatively affected by increased food costs and the implementation of a new
federal minimum wage in October 1996 and September 1997. As of March 1, 1997,
the Company was not in compliance with certain covenants contained in its then
existing credit facility. The Company and the lender amended the credit
facility, and all covenant violations were waived by the lender. In June 1997,
the Company replaced that facility with the Company's current credit facility.
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Commencing in the latter part of the first quarter of fiscal year 1998, the
Company's management implemented a number of measures designed to achieve growth
under these difficult industry conditions. Given the industry's unit saturation,
management focused its efforts primarily on increasing sales from existing
locations rather than opening new units. The Company intensified its marketing
at the local restaurant level, stressing involvement in community life and
activities and targeted additional sales opportunities through church, civic and
educational institutions. Additionally, the Company eliminated the use of costly
and ineffective electronic media in its advertising efforts. For developing new
and replacement restaurants, the Company used a new store model, which required
a lower investment and was substantially more cost-effective to operate than a
traditional restaurant. The Company also implemented price increases in an
attempt to pass increased costs along to customers and to reduce the same-store
sales impact of decreasing customer counts. In addition, the Company took
numerous other cost-containment measures, including improvements in the food
control system, elimination of a layer of supervisory restaurant management and
corporate staff reductions.
The effects of these measures, however, were not evident in the Company's
financial results for the first and second quarters of fiscal year 1998.
Customer trends during the first and second quarters of fiscal 1998 continued to
be negative and to adversely affect the Company's results of operation, and
earnings for the quarters were lower than anticipated. As a result, on September
22, 1997, the Company retained Ernst & Young Financial Services Group ("E&Y
FSG") to advise the Company in connection with its relationship with its
principal lender.
At the regularly scheduled meeting of the Board of Directors which was held
in conjunction with the Annual Meeting of Shareholders on September 24, 1997,
management advised the Board of Directors of the probability that, based on
trends existing at that time, and the Company's historical dividend policy, one
or more of the financial covenants contained in the Company's credit facility
would be violated at the end of the second quarter of fiscal 1998. Given the
Company's financial performance in previous quarters and its prospects for the
near future, the Board of Directors suspended the payment of cash dividends
beginning with the cash dividend with respect to the first quarter of fiscal
1998.
At the same meeting, Dolph W. von Arx, the Chairman of the Board of
Directors, reported on informal discussions between the Company's management and
two investors who had expressed an interest in a transaction involving the
Company. In addition, Mr. von Arx reported that Ronald A. LaBorde, the Chief
Executive Officer of Parent, had also contacted Ronnie L. Tatum, Chief Executive
Officer of the Company, and indicated that he would be interested in pursuing
discussions about a possible relationship between Parent and the Company. The
Board of Directors determined that it would be premature to pursue a
transaction with any third party at that time. The Board of Directors felt that
it needed a more clear and definite understanding of the Company's performance
and financial condition before taking steps to pursue strategic alternatives.
Messrs. LaBorde and Tatum met in October 1997 and discussed the
possibility of a business combination between the two companies.
The Board of Directors held a special meeting on November 5, 1997 to
receive a presentation from E&Y FSG. During this presentation, E&Y FSG reviewed
the history of the credit facility, the potential covenant violations, the
restaurant industry and the Company's position therein, operational alternatives
that the Company should consider and possible strategic solutions involving
third parties. E&Y FSG also reviewed with the Board of Directors the terms of a
proposed credit facility restructuring which included interest rate increases,
collateralization of the indebtedness and modification of covenants. Though the
Company had not engaged E&Y FSG to assist the Company in an assessment of its
strategic alternatives, E&Y FSG identified certain strategic weaknesses that
would have to be addressed in connection with a restructuring of the credit
facility. In particular, the E&Y FSG analysis suggested that, given the existing
trends in the Company's cafeteria business, the Company would require
significant additional capital to effect a turnaround in its operations by
changing the location of its cafeteria units from mall to freestanding, closing
unprofitable units and building new, smaller and potentially more profitable
restaurants.
Faced with the prospect of continuing negative operating trends and the
prospect of potential acquirors contacting the Company, the Board of Directors
determined that it would be advisable for the Company to retain an investment
banking firm to assist the Company in reviewing its strategic alternatives. The
Board of Directors appointed a committee consisting of E. Eugene Bishop and
Dolph W. von Arx to interview various investment banking firms and to select a
financial advisor to the Company. The committee interviewed three
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investment banking firms and selected Wheat First Securities, Inc. ("Wheat First
Union") as financial advisor to the Company to advise it with respect to
strategic alternatives. The Company retained Wheat First Union by engagement
letter dated December 5, 1997.
At a special meeting of the Board of Directors held on December 15, 1997,
Wheat First Union reported on its initial preliminary review of the Company's
business and its prospects. Wheat First Union's assessment largely confirmed the
preliminary indications given by E&Y FSG that the Company would require
significant capital expenditures to effect a return to significant
profitability. While some of the measures that the Company had implemented
beginning in the latter part of the first quarter of fiscal 1998 had some
positive impact, overall operating trends continued to be negative and, in
particular, the Company's cash flows were trending down. Wheat First Union also
reviewed with the Board of Directors on a preliminary basis the strategic
alternatives available to the Company. These alternatives included: remaining
independent; the sale of the Company either to a financial buyer or a strategic
buyer; and the possibility of selling some of the geographic divisions of the
Company as separate units with the remaining business to be operated by current
management as a public company or sold in a buy-out with management
participation. Wheat First Union indicated that it believed that, although
shareholder value could be maximized through a sale of geographic divisions to a
number of purchasers, given the complexity of multiple transactions, a sale of
the Company to a strategic purchaser would be the more likely alternative for
the Company.
Following this presentation and subsequent discussion, the Board of
Directors authorized Wheat First Union to contact a broad range of potential
purchasers, both financial and strategic, to determine the available level of
interest such parties might have in a transaction with the Company. The Board of
Directors also authorized Wheat First Union to prepare a confidential memorandum
containing information about the Company and its business and provide such
information to those parties that indicated an interest in pursuing a
transaction involving the Company or any of its geographic divisions.
At its regularly scheduled meeting on January 13, 1998, the Board of
Directors again reviewed with Wheat First Union the Company's strategic
alternatives and determined to continue the process authorized at the previous
meeting, and the Company publicly announced Wheat First Union's engagement in
its quarterly earnings release on the following day.
As authorized by the Board of Directors, Wheat First Union contacted 27
potential strategic and financial purchasers, including investors and other
persons that had previously expressed an interest in pursuing a transaction
with or involving the Company. The Company entered into confidentiality
agreements with 16 of these potential purchasers, including Parent, pursuant to
which Wheat First Union provided to them copies of the confidential memorandum.
Of the parties that received the information package, four submitted
preliminary proposals indicating an interest in pursuing a possible acquisition
of, or merger with, the Company.
At a special meeting held on February 24, 1998, the Board of Directors
appointed a special negotiating committee (the "Special Committee"), comprised
of Dolph W. von Arx, Dr. Donald Ratajczak and J. Veronica Biggins, to negotiate
with potential bidders, consider alternatives and otherwise manage the strategic
process and present to the full Board of Directors one or more proposals as it
deemed appropriate. The Board of Directors reviewed with Wheat First Union the
preliminary indications of interest received, and instructed Wheat First Union
to arrange for further due diligence by these parties and to request revised
proposals by March 31, 1998. Three of these parties submitted final proposals to
the Company as described below.
After consulting with the Special Committee, Wheat First Union negotiated
further with the potential purchasers and, following these negotiations, by
letter dated March 27, 1998, Parent submitted to Wheat First Union a revised
proposal for the acquisition of the Company's outstanding Shares for an
aggregate consideration of $42,000,000 in cash, subject to the execution of a
mutually acceptable definitive agreement. In its proposal Parent expressed a
preference for an all-cash merger, with a friendly cash tender offer for the
Shares to be commenced shortly after the execution of the definitive agreement
and with the tender offer being supported by the Board of Directors of the
Company. In addition, by letter dated March 31, 1998, a publicly held company in
the restaurant industry ("Company A") also submitted to Wheat First Union its
revised preliminary non-binding indication of interest to acquire all of the
outstanding Shares of the Company at a purchase price of $4.50 per Share payable
in Company A's stock. Company A's indication of interest was
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based upon certain assumptions and subject to material additional due diligence
and the negotiation and execution of a definitive agreement. The third proposal
was made by a potential financial purchaser and contemplated the acquisition of
assets of the Company and assumption of related working capital liabilities
with the Company retaining retirement and certain other assets and liabilities.
The estimated net purchase price under this proposal was $3.66 per Share. The
Board of Directors did not believe that this third proposal constituted a
viable alternative for the Company and this third party did not subsequently
offer to materially improve the terms of its proposal.
Counsel to the Company sent initial drafts of acquisition agreements to
Parent and Company A on March 31, 1998 and April 9, 1998, respectively, and
commenced negotiations of the agreement with Parent's counsel. During the
discussions that followed, Parent indicated that it would increase the proposed
consideration to $5.00 per Share in cash and Company A indicated that it would
consider additional revisions to its proposal, including an increase in the
proposed consideration and a change in the structure of the proposed
transaction.
On April 10, 1998, the Special Committee and Wheat First met to discuss the
existing proposals and the status of negotiations with potential purchasers. At
its regularly scheduled meeting that followed, the Board of Directors
considered the three final acquisition proposals submitted to the Company. The
Board of Directors' view was that Parent's proposal was superior, even taking
into account the potential revisions to its proposal being considered by
Company A. The Board of Directors noted that the transaction proposed by
Parent, because of its structure as a cash merger with a first step tender
offer and because Parent was further along in its due diligence investigation
of the Company, was likely to be consummated sooner than the transaction
proposed by Company A. This was considered important given the then current
trend in the Company's financial performance. The Board of Directors also took
into account the fact that Parent operated in the same industry as the Company,
Parent's strong financial condition and the greater likelihood that a
transaction with Parent as opposed to one with Company A would be consummated.
Given the uncertainties inherent in pursuing a number of proposals at the same
time and the risk that as a result of such course of action the Company might
fail to secure the best available offer, the Board of Directors determined
that, unless Company A were to increase its proposed price quickly and
significantly, acceding to Parent's request for exclusive negotiations for a
short period of time would be in the best interest of the Company and its
Shareholders. Following this meeting, Wheat First Union informed Parent that
the Company would pursue negotiations exclusively with Parent for a week to
enable Parent to complete its due diligence and to negotiate the terms of a
definitive agreement. Company A was also informed that the Company would
negotiate exclusively with Parent. Counsel for the Company and Parent continued
negotiations with respect to the proposed agreement between Parent and the
Company, and Parent continued its due diligence investigation of the Company.
On April 21, 1998, the Board of Directors met again to consider the revised
proposals from Parent and Company A. The Board of Directors believed that
Parent's proposal was superior to Company A's proposal because, among other
things, Parent proposed to acquire the Company for cash as opposed to stock in a
transaction that, due to its structure, would close earlier and would have a
greater likelihood of consummation than the transaction proposed by Company A.
The Board of Directors reviewed the terms of the draft agreement and plan of
merger with legal counsel and received and considered the verbal opinion of
Wheat First Union with respect to the fairness of Parent's proposal from a
financial point of view. The Wheat First Union opinion was later confirmed in
writing and a copy thereof is attached as Annex A hereto. The Board of Directors
then determined to accept Parent's proposal and unanimously (i) approved and
adopted the proposed plan and agreement of merger in substantially the form
presented to the Board of Directors subject to the satisfactory negotiation of
certain provisions (other than the $5.00 per Share price to be paid in the Offer
or the Merger) by or under the direction of the Chairman of the Board of
Directors, (ii) determined that the Offer and the Merger, considered as a whole,
are fair to and in the best interests of the Company and its shareholders, and
(iii) recommended that the Company's shareholders tender their Shares in the
Offer and vote to approve and adopt the Merger Agreement and the Merger at any
meeting of the shareholders held to consider the Merger.
Representatives of the Company and Parent negotiated the remaining issues
on April 22, 1998. The final plan and agreement of merger was executed by the
parties after the close of business on April 22, 1998 and a joint announcement
of the execution of the plan and agreement of merger was made by Parent and the
Company on the morning of April 23, 1998. The plan and agreement of merger as
executed and delivered by the parties thereto constitutes the "Merger Agreement"
as defined earlier herein.
In reaching its conclusion and making its determinations as outlined above,
the Board of Directors considered a number of factors, including, without
limitation, the following:
(i) the consideration proposed to be paid by Parent pursuant to the
Offer and the Merger relative to (A) the Company's historical revenue,
income and book value, (B) the Company's internal expectations covering
customer counts, same-store sales, revenues, income and book value, and (C)
recent and historical market prices of the Shares;
(ii) the familiarity of the Board of Directors with the business,
financial condition and prospects of the Company, the nature of the
Company's industry and markets, including the belief of the Board of
Directors that in order to be competitive and achieve growth in its
industry, the Company would require substantial additional capital;
(iii) the fact that the form and amount of consideration proposed to
be paid by Parent pursuant to the Offer and the Merger were superior to the
consideration proposed to be paid by Company A;
(iv) the fact that the Parent's proposal involved a cash tender offer
which would give the Company's shareholders the opportunity to receive the
transaction consideration sooner than a stock transaction;
(v) Parent's knowledge of the cafeteria business and experience in the
restaurant industry; and
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(vi) the opinion of Wheat First Union (described below) to the effect
that the consideration to be received by the Company's shareholders
pursuant to the Offer and the Merger is fair, from a financial point of
view, to such shareholders.
OPINION OF FINANCIAL ADVISOR TO THE COMPANY
Pursuant to an engagement letter dated December 5, 1997 (the "Engagement
Letter"), the Company retained Wheat First Union to act as its financial advisor
in considering the Company's strategic and financial alternatives for maximizing
shareholder value, including the possible sale of all or a portion of the
Company. After Wheat First Union reported to the Board about its preliminary
conclusions on the Company's strategic alternatives, the Board directed Wheat
First Union to conduct a controlled auction of the Company and to help in the
drafting and preparation of a confidential offering memorandum to be circulated
to potential buyers. Wheat First Union is a nationally recognized firm and, as
part of its investment banking activities, is regularly engaged in the valuation
of businesses and their securities in connection with merger transactions and
other types of acquisitions, negotiated underwritings, secondary distributions
of listed and unlisted securities, private placements and valuations for
corporate and other purposes. The Company selected Wheat First Union as its
financial advisor on the basis of Wheat First Union's experience and expertise
in transactions similar to the Offer and the Merger, and its reputation in the
restaurant and investment industries.
In connection with the consideration by the Board of the merits of the
Offer and the Merger, Wheat First Union was asked under the terms of the
Engagement Letter to perform various financial analyses and deliver to the Board
its opinion based on such analyses.
THE OPINION OF WHEAT FIRST UNION WAS DIRECTED TO THE BOARD FOR ITS
CONSIDERATION IN CONNECTION WITH THE PROPOSED OFFER AND MERGER, AND IS NOT A
RECOMMENDATION TO ANY HOLDER OF COMPANY COMMON STOCK AS TO WHETHER THE OFFER OR
THE MERGER IS IN SUCH HOLDER'S BEST INTERESTS OR AS TO WHETHER HOLDERS OF
COMPANY COMMON STOCK SHOULD TENDER THEIR SHARES OR VOTE FOR OR AGAINST THE
MERGER. THE FULL TEXT OF SUCH WRITTEN OPINION OF WHEAT FIRST UNION DATED APRIL
22, 1998, IS ATTACHED HERETO AS ANNEX A AND SETS FORTH CERTAIN IMPORTANT
QUALIFICATIONS, ASSUMPTIONS MADE, MATTERS CONSIDERED, AREAS OF RELIANCE ON
OTHERS, AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH SUCH
OPINION. THE SUMMARY DESCRIPTION OF SUCH OPINION SET FORTH BELOW IS QUALIFIED IN
ITS ENTIRETY BY THE FULL TEXT OF THE OPINION ATTACHED HERETO AS ANNEX A, AND IS
INCORPORATED HEREIN BY REFERENCE AND SHOULD BE READ CAREFULLY AND IN ITS
ENTIRETY IN CONNECTION WITH THE TENDER OFFER MATERIAL.
In arriving at its opinion, Wheat First Union among other things (i)
reviewed certain publicly available business and financial information relating
to the Company; (ii) reviewed certain other information, including financial
forecasts, provided to Wheat First Union by the Company, and met with the
Company's management to discuss the business and prospects of the Company; (iii)
considered certain financial data of the Company and compared that data with
similar data for publicly held companies in businesses similar to those of the
Company; (iv) considered the financial terms of certain other business
combinations and other transactions which had recently been effected; (v)
reviewed the financial terms and conditions of the Merger Agreement; and (vi)
considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which Wheat First
Union deemed relevant.
Based upon and subject to its review of the foregoing, its work described
below, its experience as investment bankers and other factors it deemed
relevant, but subject to the limitations set forth below and in reliance upon
the assumptions set forth below, Wheat First Union provided the Board with its
opinion as investment bankers that as of the date of its opinion (and as of
April 21, 1998, which was the date that Wheat First Union presented its
financial analyses to the Board), the aggregate consideration to be received by
the holders of Shares pursuant to the Offer and the Merger was fair to such
holders from a financial point of view.
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No limitations were imposed by the Company on Wheat First Union with respect to
the investigations made or procedures followed in rendering its opinion.
In connection with its review, Wheat First Union did not assume any
obligation for independent verification of financial and other information
reviewed by it and relied on such information being accurate and complete in all
material respects. With respect to the financial forecasts for the Company
provided to Wheat First Union by the Company's management, Wheat First Union
assumed that the forecasts had been reasonably prepared on bases reflecting the
best available estimates and judgments of the Company's management as to the
future financial performance of the Company and that such projections provided a
reasonable basis upon which Wheat First Union could form its opinion. Wheat
First Union also assumed that there had been no material changes in the
Company's assets, financial condition, results of operations, business or
prospects since the dates of the last financial statements made available to
Wheat First Union. Wheat First Union relied on advice of the counsel and the
independent accountants to the Company as to all legal and financial reporting
matters with respect to the Company, this Statement, the Offer, the Merger and
the Merger Agreement. Wheat First Union assumes that the Offer and the Merger
will be consummated in a manner that complies in all respects with the
applicable provisions of the Securities Act of 1933, as amended, the Exchange
Act and all other applicable federal and state statutes, rules and regulations.
In addition, Wheat First Union did not assume responsibility for making an
independent evaluation, appraisal or physical inspection of any of the assets or
liabilities (contingent or otherwise) of the Company, nor was Wheat First Union
furnished with any such appraisals. Finally, Wheat First Union's opinion was
based on economic, monetary, market and other conditions as in effect on, and
the information made available to Wheat First Union as of, the date of the
opinion (April 22, 1998). Accordingly, although subsequent developments may
affect its opinion, Wheat First Union did not assume and does not have any
obligation to update, revise or reaffirm its opinion.
Wheat First Union also assumed that the Offer and the Merger will be
consummated in accordance with the terms described in the Merger Agreement,
without any further amendments thereto, and without waiver by the Company of any
of the conditions to its obligations thereunder. The Merger Agreement is filed
as Exhibit 2 hereto and the terms of the Merger Agreement and the conditions to
the Company's obligations thereunder should be reviewed and understood by
holders of Shares in connection with their consideration of the Offer and the
Merger.
Set forth below is a brief summary of selected analyses presented by Wheat
First Union to the Board on April 21, 1998 in connection with its April 22, 1998
opinion described above.
Market Test
Wheat First Union conducted a market test by contacting 27 potential
acquirors of the Company and circulating a confidential memorandum to 16 of
these entities. From those entities contacted, the Company received four
preliminary bids. Such bids ranged in price from $3.80 to $5.00 per share with
two bidders proposing all cash consideration and the others proposing a
combination of cash and stock of the bidder. After the preliminary bidders were
given access to the Company's management team and internal data, the Company
received three final bids to acquire the Company ranging in value from $3.68 to
$4.55 per share. One bid was structured as an asset purchase and the other two
bids were structured as an acquisition of the Company's stock. One of these two
bids was an all-cash bid, while the other bid was for the stock of the bidder.
The Board directed Wheat First Union to continue to negotiate with the two
highest bidders, which resulted in Parent making a final all cash bid of $5.00
per share. Parent's bid was selected as the best bid based on total
consideration to shareholders and structure of the proposed transaction. The
second highest bidder proposed an offer of cash and stock that would have
required the approval of that bidder's shareholders and would have resulted in a
longer time period to close.
Comparable Company Analysis
Using public and other available information, Wheat First Union calculated
the Company's imputed per Share value based on the multiples of latest twelve
months' ("LTM") earnings before interest, taxes,
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depreciation and amortization ("EBITDA") of selected publicly traded family
dining restaurant companies ("selected comparable companies"). The group of
selected comparable companies was Buffet's Inc., Cracker Barrel Old Country
Store, Inc., Furr's/Bishop's Inc., Luby's Cafeterias Inc., Piccadilly
Cafeterias, Inc., Ryan's Family Steak Houses, Inc., and Star Buffet, Inc. In
comparing the Company's financial performance to that of the selected comparable
companies, Wheat First Union made the following observations, among others: (i)
the Company's sales declined by 7.9% over the last two fiscal years while
compared to a median increase of 8.1% and a mean increase of 5.5% for the
selected comparable companies; (ii) the Company had a LTM EBITDA margin of 2.7%
compared to a median of 11.2% and a mean of 11.0% for the selected comparable
companies; (iii) the Company had a LTM earnings (loss) before interest and taxes
("EBIT") margin of (1.4%) compared to a median of 7.5% and a mean of 7.8% for
the selected comparable companies and (iv) the Company had a LTM net income
(loss) margin of (1.0%) compared to a median of 4.9% and a mean of 4.7% for the
selected comparable companies.
Wheat First Union applied the mean and median multiples of LTM EBITDA for
the group of comparable companies to the LTM EBITDA of the Company. This
analysis indicated an imputed aggregate value (defined as equity value plus net
debt) of the Company of between $50.6 million and $55.2 million, or an equity
value of between $4.06 and $4.55 per share.
Comparable Transactions Analysis
Wheat First Union also reviewed the consideration paid in selected merger
and acquisition transactions in the restaurant industry announced since January
1995. Wheat First Union analyzed the consideration paid in such transactions as
a multiple of the target companies' LTM EBITDA and then applied the mean and the
median of the multiples from those transactions to the Company's LTM EBITDA.
This analysis indicated an imputed aggregate value of the Company of between
$48.8 million and $52.0 million, or an equity value of between $3.86 and $4.21
per share.
Premiums Paid Analysis
Wheat First Union reviewed the consideration paid in comparable U.S.
acquisitions announced since January 1, 1996, in which the target company had an
equity value of between $10 million and $200 million and in which the acquiror
was seeking to purchase at least 90% of the target company's outstanding shares
of common stock. Wheat First Union calculated the premiums paid in those
transactions over the applicable stock prices of the target companies one day,
one week and four weeks prior to the announcement of the acquisition offer, and
then calculated the mean and median of those premiums (the mean premiums were
27.6%, 33.2% and 39.1%, while the median premiums were 20.5%, 28.0% and 31.8%,
respectively). Wheat First Union then applied the mean and median premiums so
derived to the Company's closing share prices on April 9, 1998 ($3.81), April 2,
1998 ($3.25) and March 12, 1998 ($3.13). The share price of the Company as of
April 9, 1998, was selected as the price one day prior to announcement for this
analysis because on the following day (April 10) the Company filed a press
release which, in addition to reporting the results of the Company's Fiscal 1997
third quarter, acknowledged that the Company was in discussions with several
unidentified potential acquirors. This analysis indicated an imputed aggregate
value of the Company of between $53.1 million and $58.1 million, or an equity
value of between $4.33 and $4.86 per share.
No other company or transaction used in the comparable company analysis,
the comparable transactions analysis or the premiums paid analysis as a
comparison is identical to the Company or the Offer and the Merger. Accordingly,
an analysis of the results of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors that
could affect the public trading value of the companies to which the Company and
the Offer and the Merger are being compared.
Company Financial Performance Trends
Wheat First Union analyzed the Company's publicly reported financial
performance during the first three fiscal quarters of 1998 and compared the
Company's results for the twelve month period ended May 31, 1997,
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to the Company's results for the twelve month period ended February 28, 1998.
Wheat First Union observed the following trends, among other things: (i) the
Company's LTM sales declined from $249.6 million to $241.3 million; (ii) the
Company's LTM EBITDA declined from $14.4 million to $6.6 million; (iii) the
Company's LTM EBIT declined from $4.5 million to ($3.4) million and (iv) the
Company's LTM net income declined from $2.7 million to ($2.3) million.
Discounted Cash Flow Analysis
Wheat First Union applied a discounted cash flow analysis to the Company's
financial forecasts for 1998 through 2000. The Company did not provide Wheat
First Union with any financial forecasts for periods beyond 2000.
In conducting its discounted cash flow analysis, Wheat First Union
calculated the estimated future streams of free cash flows that the Company
would produce through 2000 (using management's financial forecasts for 1998
through 2000), as well as the estimated value of the Company at the end of the
forecasting period ("terminal value"). The terminal value was computed by
multiplying the Company's estimated year 2000 EBITDA by a range of multiples
between 4.0x and 8.0x, chosen to reflect the Company's potential acquisition
multiple at the end of year 2000. Such free cash flow streams and terminal
values were discounted to present values using a range of discount rates of
between 12% and 16%, chosen to reflect assumptions regarding the Company's cost
of capital. This analysis indicated an imputed aggregate value of the Company of
between $16.4 million and $62.6 million respectively, or an equity value of
between $1.77 and $5.35 per share.
While the foregoing summary describes all analyses and examinations that
Wheat First Union deemed material to the preparation of its opinion to the
Board, it does not purport to be a comprehensive description of all analyses and
examinations actually conducted by Wheat First Union. The preparation of a
fairness opinion necessarily is not susceptible to partial analysis or summary
description; and selecting portions of the analyses and of the factors
considered by Wheat First Union, without considering all analyses and factors,
would create an incomplete view of the process underlying the analyses set forth
in the presentation of Wheat First Union to the Board on April 21, 1998. In
addition, Wheat First Union may have given some analyses more or less weight
than other analyses, and may have deemed various assumptions more or less
probable than other assumptions. Accordingly, the ranges of valuations resulting
from any particular analysis described above should not be taken to be Wheat
First Union's view of the actual value of the Company or Company Common Stock.
To the contrary, Wheat First Union expressed no opinion on the actual value of
the Company or Company Common Stock, and its opinion that is addressed and
limited to the Board extends only to the belief expressed by Wheat First Union
that the immediate value to holders of Company Common Stock, from a financial
point of view under the Offer and the Merger, is within the range of values that
might fairly be ascribed to the Company Common Stock as of the date of the
opinion of Wheat First Union (April 22, 1998), and as of the date of the Board's
consideration of the Offer and the Merger (April 21, 1998). At the time of the
delivery of its oral opinion, Wheat First Union provided a draft form of opinion
that was the same in all material respects as the executed opinion later
provided to the Board.
In performing its analyses, Wheat First Union made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of the Company. The
analyses performed by Wheat First Union are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than those suggested by such analyses. Such analyses were prepared
solely as part of Wheat First Union's analysis for the Board of the fairness of
the Offer and the Merger to the holders of Company Common Stock from a financial
point of view, and were provided solely to the Board in connection with the
Board's consideration of the Offer and the Merger. The analyses do not purport
to be appraisals or to reflect the prices at which a company might actually be
sold or the prices at which any securities may trade at any time in the future.
Wheat First Union used in its analyses various projections of future performance
prepared by the management of the Company. The projections are based on numerous
variables and assumptions which are inherently unpredictable and must be
considered not certain or accurate as projected. Accordingly, actual results
could vary significantly from those set forth in such projections.
8
<PAGE> 10
As described above, the opinion of Wheat First Union and the presentation
to the Special Committee and the Board summarized above were among the many
factors taken into consideration by the Board in making its determination to
approve, and to recommend that its shareholders approve, the Merger. Wheat First
Union, however, does not make any recommendation to holders of shares of Company
Common Stock (or to any other person or entity) as to whether such shareholders
should tender their shares pursuant to the Offer or vote for or against the
Merger.
Pursuant to the Engagement Letter, the Company agreed to pay Wheat First
Union a retainer of $100,000 and a fee equal to $150,000 upon the delivery of
the written opinion to the Board that is described above. This $150,000 fee was
not conditioned on the outcome of Wheat First Union's opinion or whether such
opinion was deemed favorable or unfavorable by the Company or its Board. In
addition, if the Offer and the Merger are effected on the terms set forth in the
Merger Agreement, the Engagement Letter provides for the Company to pay Wheat
First Union a fee equal to approximately $800,000 (the "Contingent Fee"). The
$100,000 retainer and the $150,000 fee described above will be credited against
the Contingent Fee payable to Wheat First Union if the Merger is effected. The
Company will be obligated to pay the Contingent Fee only if the Offer and the
Merger (or another transaction) are consummated. Accordingly, the payment of a
substantial majority of Wheat First Union's total fee is subject to the
consummation of the Offer and the Merger. The Engagement Letter also calls for
the Company to reimburse Wheat First Union for its reasonable out-of-pocket
expenses and for the Company to indemnify Wheat First Union, its affiliates, and
their respective directors, agents, employees and controlling persons against
certain liabilities, including liabilities under the federal securities laws,
relating to or arising out of Wheat First Union's engagement. Wheat First Union
and its affiliates may maintain business relationships with the Company, Parent,
the other bidders and their affiliates.
In the ordinary course of business, Wheat First Union or its affiliates may
actively trade the debt and equity securities of the Company, Parent, the other
bidders or their respective affiliates for its or any such affiliate's own
account or for the account of customers and, accordingly, may hold a long or
short position in such securities. In addition, Wheat First Union and its
affiliates in the past may have provided investment and commercial banking
products and services for the Company, Parent, the other bidders, their
affiliates and other related persons. Wheat First Union is not affiliated with
the Company or Parent.
9
<PAGE> 11
ITEM 9. MATERIALS TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
Exhibit 1 -- Offer to Purchase of Parent dated April 29, 1998 and related Letter of
Transmittal.(1)
Exhibit 2 -- Plan and Agreement of Merger dated April 22, 1998 among the Company, Parent
and Offeror.(1)
Exhibit 3 -- Pages 5 through 13 of the Proxy Statement of the Company dated August 20,
1997.(1)
Exhibit 4 -- Form of Indemnification Agreement between the Company and each of its
directors and executive officers. [Incorporated by reference to Exhibit
10(o) to the Company's Registration Statement on Form 10 filed with the
Commission on February 8, 1996.]
Exhibit 5 -- Form of Change of Control Agreement between the Company and each of its
executive officers. [Incorporated by reference to Exhibit 10(p) to the
Company's Amendment to Registration Statement on Form 10/A filed with
the Commission on February 29, 1996.]
Exhibit 6 -- Stay bonus letters dated March 6, 1998 to the Company's executive officers.
[Incorporated by reference to Exhibit 99.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended February 28, 1998.]
Exhibit 7 -- Amendment dated as of April 22, 1998 to Rights Agreement, dated as of
March 2, 1996, as amended, between the Company and SunTrust Bank, N.A.(1)
Exhibit 8 -- Joint Press Release issued by the Company and Parent on April 23, 1998.(1)
Exhibit 9 -- Letter to shareholders of the Company dated April 29, 1998.(1)(2)
Exhibit 10 -- Opinion of Wheat First Securities, Inc. dated April 22, 1998.(1)
Exhibit 11 -- Joint Press Release issued by the Company and Parent on May 21, 1998.
</TABLE>
- ---------------
(1) Previously filed.
(2) Included in copies mailed to stockholders.
10
<PAGE> 12
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: May 22,1998
By: /s/ DOLPH W. VON ARX
----------------------------------
Dolph W. von Arx
Chairman of the Board
11
<PAGE> 13
EXHIBIT NUMBER
<TABLE>
<S> <C>
Exhibit 1 -- Offer to Purchase of Parent dated April 29, 1998 and related Letter of
Transmittal.(1)
Exhibit 2 -- Plan and Agreement of Merger dated April 22, 1998 among the Company, Parent
and Offeror.(1)
Exhibit 3 -- Pages 5 through 13 of the Proxy Statement of the Company dated August 20,
1997.(1)
Exhibit 4 -- Form of Indemnification Agreement between the Company and each of its
directors and executive officers. [Incorporated by reference to Exhibit
10(o) to the Company's Registration Statement on Form 10 filed with the
Commission on February 8, 1996.]
Exhibit 5 -- Form of Change of Control Agreement between the Company and each of its
executive officers. [Incorporated by reference to Exhibit 10(p) to the
Company's Amendment to Registration Statement on Form 10/A filed with
the Commission on February 29, 1996.]
Exhibit 6 -- Stay bonus letters dated March 6, 1998 to the Company's executive officers.
[Incorporated by reference to Exhibit 99.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended February 28, 1998.]
Exhibit 7 -- Amendment dated as of April 22, 1998 to Rights Agreement, dated as of
March 2, 1996, as amended, between the Company and SunTrust Bank, N.A.(1)
Exhibit 8 -- Joint Press Release issued by the Company and Parent on April 23, 1998.(1)
Exhibit 9 -- Letter to shareholders of the Company dated April 29, 1998.(1)(2)
Exhibit 10 -- Opinion of Wheat First Securities, Inc. dated April 22, 1998.(1)
Exhibit 11 -- Joint Press Release issued by the Company and Parent on May 21, 1998.
</TABLE>
- ---------------
(1) Previously filed.
(2) Included in copies mailed to stockholders.
<PAGE> 1
Exhibit 11(a)(12)
PRESS RELEASE
Contacts: PICCADILLY CAFETERIAS, INC. MORRISON RESTAURANTS INC.
J. Fred Johnson Craig D. Nelson
Chief Financial Officer Senior Vice President of Finance
(504) 293-9440 (770) 308-3700
EARLY TERMINATION GRANTED UNDER HART-SCOTT-RODINO ANTITRUST
IMPROVEMENTS ACT FOR PICCADILLY CAFETERIAS, INC.'S
ACQUISITION OF MORRISON RESTAURANTS INC.
----------------
BATON ROUGE, La. and ATLANTA, Ga. (May 21, 1998) - Piccadilly Cafeterias, Inc.
(NYSE:PIC) ("Piccadilly") and Morrison Restaurants Inc. (NYSE:MRN) ("Morrison")
today jointly announced that each had received notice that early termination of
the required waiting period for Piccadilly's proposed acquisition of Morrison
has been granted under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
thus satisfying one of the conditions to the closing of Piccadilly's cash tender
offer for outstanding shares of Morrison. Under the tender offer, Piccadilly has
offered to acquire all of the outstanding shares of Morrison for $5.00 per
share. Morrison currently has approximately 9.2 million shares outstanding.
Piccadilly commenced its cash tender offer on April 29, 1998. The cash
tender offer remains subject to receipt by Piccadilly of at least 66-2/3% of the
shares of Morrison and certain other customary conditions. Assuming all of such
conditions are met, shares tendered and not withdrawn will be accepted for
payment by Piccadilly following expiration of the tender offer period at
midnight on Wednesday, May 27, 1998. It is expected that the merger transaction
which will follow the tender offer will be completed within 60 days.
Morrison currently operates 142 restaurants in 13 southeastern and
mid-Atlantic states. For the nine months ended February 28, 1998, Morrison
reported sales of $179.7 million and a net loss of $2.9 million, or $0.32 per
diluted share. For the nine months ended March 31, 1998, Piccadilly reported
sales of $234.8 million and net income of $7.5 million, or $0.71 per diluted
share. On an annualized basis the combined companies are expected to produce
sales in excess of $500 million.
Piccadilly operates 131 cafeterias in 15 states, four Piccadilly
Express in Associated Grocer supermarkets, and seven Ralph & Kacoo's seafood
restaurants in three states. All units are Company-owned.
Forward-looking statements regarding management's present plans or
expectations for new unit openings and operating results may differ materially
from actual results. These plans and expectations involve risks and
uncertainties relative to certain factors including return expectation,
allocation of resources, changing economic or competitive conditions,
advertising effectiveness, the ability to achieve cost reductions, and the
ability to offset inflationary pressures through increases in selling prices,
among others, any of which may result in material differences.
