Investment firm acquires 6.3% stake in McCormick & Schmick's

Discovery Group, a Chicago-based investment firm, acquired a 6.3-percent stake in McCormick & Schmick’s Seafood Restaurants Inc. in what some see as a move to take advantage of an expected higher sale price.

Last week, Houston hospitality magnate Tilman Fertitta withdrew his unsolicited tender offer for the seafood chain [3], although he said his attempts to complete an acquisition will continue.

Fertitta’s LSRI Holdings Inc., a subsidiary of Landry’s Inc., in early April offered $137.3 million, or $9.25 per share, for the Portland, Ore.-based chain. However, company officials said the offer undervalued the brand.

In withdrawing the bid, Fertitta — who owns 10.1 percent of the chain’s common stock — entered into a confidentiality agreement with McCormick & Schmick’s to begin the due diligence process with the goal of negotiating a fair value for the chain.

On Monday, Discovery Group and affiliates — led by principals Daniel Donoghue and Michael Murphy — announced the acquisition over several weeks of about 931,091 shares of McCormick & Schmick’s common stock, according to filings with the U.S. Securities and Exchange Commission.

Analyst Bart Glenn of D.A. Davidson & Co. speculated that Discovery Group’s investment is a move to take advantage of what will likely be a higher bid by Fertitta — although he said it also could reflect a certain confidence that the chain’s management will turn around sales for the upscale seafood brand.

Discovery Group officials did not respond to requests by press time.

For the first quarter ended March 30, McCormick & Schmick’s reported a net loss of $658,000, or 4 cents per share, compared with a loss of $440,000 or 3 cents per share, a year ago.

Same-store sales in the first quarter dropped 3.2 percent and revenues declined 1 percent.

Glenn, however, projected same-store sales in the second quarter would be down 2 percent, reflecting a gradual improvement in trends.

McCormick & Schmick’s also is expected to begin a remodeling plan that was scheduled to include eight locations to be upgraded this year.

The company operates 94 restaurants, including 87 in the United States and seven in Canada under The Boathouse brand.

Contact Lisa Jennings at [email protected] [4].
Follow her on Twitter: @livetodineout [5]