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Investor advocate ISS urges approval of OSI deal

ROCKVILLE Md. Proxy vote advisor Institutional Shareholder Services recommended that shareholders of Outback Steakhouse parent OSI Restaurant Partners Inc. vote to approve the company's pending $3.2 billion going-private buyout.

ISS said "strategic action is justified" given the restaurant company's "track record of deteriorating performance, loss of market share and management missing analysts' and internal estimates" since 1998. It also cited "lack of investor confidence" in current management's ability to navigate a successful turnaround for the restaurant operator and franchisor that has struggled with soft sales for more than two years. A sale, therefore, "represents a more favorable alternative for shareholders," ISS said.

Tampa-based OSI, parent to nine brands and 1,440 restaurants systemwide, agreed last November to be purchased in a management-sponsored buyout by private-equity firms Bain Capital Partners LLC and Catterton Management Company LLC. The $3.2 billion deal equals a per-share price of $40, which was a 20-percent-plus premium to the company's stock price at the time of the announcement. A special shareholder meeting to vote on the proposed deal is set for May 8.

The buyout price and the sale process has drawn criticism from some investors and analysts who say the price is too low and the process, which did not include an auction, favored Outback's founders and management.

ISS said the $40 per share price was 9.5 times the restaurant company's earnings before interest, taxes, depreciation and amortization, which it said was "in line with comparable [deals]."

The advisory firm also said it "recognized the shortcomings in the process and the conflicts of interest of management and founders, but given the downside of a failed transaction resulting in a loss of premium and likely continued deterioration of fundamentals, support for the transaction is warranted."

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