Friday, September 07, 2007

Clinton Group To Carrols Restaurant (TAST): Maybe You Shouldn't Be Public

In a 13D filing on Carrols Restaurant Group, Inc. (Nasdaq: TAST), Clinton Group disclosed a 5.3% stake in the company and disclosed a letter to the company saying they believe the market has misunderstood the story and growth prospects since the IPO pricing last year. The firm said the stock trades at an astonishing discount to its peer group.
The firm also offered to help the company explore more broad based strategic alternatives including a return to a delisted private company. They also said they would consider an appointment to the Company's board of directors.

A Copy of the Letter:

Attention: Alan Vituli
Chairman of the Board and Chief Executive Officer

Dear Mr. Vituli:
We appreciate the open dialogue that we have had with you and your managementteam as we have endeavored to conduct due diligence on Carrols Restaurant Group,Inc. ("Carrols" or the "Company"). We are confident that your management teamhas the extensive restaurant industry experience necessary to be stewards ofCarrols in its growth initiatives and multi-brand positioning. As of today,funds and accounts managed by Clinton Group Inc. ("Clinton") beneficially ownapproximately 5.3% of the outstanding shares.

We have invested in a substantial portion of your common stock because webelieve that the market has misunderstood the Company's story and growthprospects since your IPO pricing last year. While the name "Carrols RestaurantGroup" does not immediately conjure up a clear brand identity, we have beenimpressed with our channel checks and food sampling at your Taco Cabana andPollo Tropical restaurants. Further, we agree with the strategy of harvestingthe cash flow of your leading Burger King franchise system to invest in newstore development of your Hispanic brands at industry-leading returns oninvested capital. Carrols' quick-service concepts offering convenience, value,and significant food quality should be defensible even in a difficult consumerdiscretionary environment.

As the chart below indicates, we note that Carrols appears to trade at anastonishing discount to its peer group. Also, as you are aware, the restaurantindustry has been active with regards to M&A, and our work shows that impliedmultiples of recent deals are in the range of 7.4x to 10.2x EBITDA whichincludes some change in control premium. Based on street estimates, we estimateCarrols' valuation multiple to be a depressed 7.0x 2007E EBITDA.

TAST Comparable Companies Precedent Range
-------- ----------------------- --------------------
2007 EBITDA 7.0x 7.9x -- 20.5x 7.4x -- 10.2x

Range of 2007E EBITDA Multiples
7.50x 8.00x 8.50x 9.00x 9.50x 10.00x

Implied Carrols Stock Price $13.46 $15.38 $17.27 $19.15 $21.03 $22.91
------ ------ ------ ------ ------ ------

Selected comparable publicly traded companies include:
TEV / 2007E
Company Ticker EBITDA
----------------------------------------------- ------------

AFC Enterprises Inc. AFCE 9.7x
Burger King Corporation BKC 9.7x
Chipotle Mexican Grill, Inc. CMG 20.5x
Dominos Pizza Inc. DPZ 11.0x
Jack in the Box Inc. JBX 7.9x
McDonald's Corp. MCD 10.3x
Panera Bread Co. PNRA 9.0x
Tim Hortons Inc. THI 13.0x
Wendy's International Inc. WEN 10.5x
Yum! Brands Inc. YUM 10.0x

Selected comparable precedent transactions include:

Target Acquiror Date EBITDA
------------------ ------------------------------------------ ------- ---------

Friendly's Sun Capital 06/07 7.4x
Johnny Rockets RedZone Capital 02/07 10.2x
Sbarro MidOcean Partners 11/06 7.5x
Cheddar's Catterton Partners/Oak Investment Partners 08/06 9.6x
Bravo BRS & Castle Harlan 06/06 9.1x
El Pollo Loco Trimaran Capital Partners 09/05 9.4x
Taco Bueno Palladium Equity 06/05 8.0x
Church's Chicken Crescent Capital 11/04 7.4x

We have a long-term view regarding our investment in Carrols and would like tocontinue to offer ourselves as a sounding board in your considerations to buildshareholder value. In the future absence of multiple enhancement and stock priceappreciation, we would be happy to help you explore more broad based strategicalternatives including a return to a delisted private company or would consideran appointment to the Company's board of directors.

Please feel free to contact me at your convenience at (212) 739-xxxx. We lookforward to speaking with you soon.

Joseph De Perio
Vice President

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