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Fidelity gets involved with J. Alexander's again

Blog: If Ninety Nine merger is OK'd, Fidelity would regain control of the company it spun off in 2015

This post is part of the On the Margin blog.

Earlier this month, J. Alexander’s Holdings Inc. said it would acquire the 106-unit Ninety Nine Restaurant and Pub from Fidelity National Financial Inc. in an all-stock deal valued at $199 million.

It’s a complex acquisition, but once it’s OK’d, Fidelity will regain controlling interest in the restaurant company it spun off just two years ago.

Fidelity is a title insurance company based in Jacksonville, Fla. Its chairman is William Foley, who was chairman of Carl’s Jr. owner CKE Restaurants when it bought Hardee’s in 1997. 

Under Foley, Fidelity got into the restaurant business in the aftermath of the recession, when restaurants were going for low prices. 

Fidelity and Newport Global Advisors formed American Blue Ribbon Holdings, and in 2009 began acquiring restaurants, including Bakers Square and Village Inn, Max & Erma’s and then O’Charley’s, which owned both Ninety Nine and Stoney River Legendary Steaks. To this day, Fidelity owns a majority stake in ABRH.

In 2012, Fidelity acquired Nashville, Tenn.-based J. Alexander’s under a different subsidiary. 

The next year, Fidelity formed an upscale dining company, with J. Alexander’s and Stoney River, which was split off of ABRH.

In 2015, Fidelity spun off J. Alexander’s as part of what had been a plan to divest itself of restaurants. Fidelity had similar plans for ABRH.

Those plans apparently changed. The spinoff of American Blue Ribbon was put on hold that year.

J. Alexander’s, meanwhile, has been a relatively sleepy company since the spinoff. Its stock has traded between $9 and $12 per share, though the stock is down 23 percent since June. Its earnings call early this month featured questions from just one analyst. 

The company converted 12 J. Alexander’s locations to Redlands Grill starting in 2015, giving the company 19 J. Alexander’s locations, 12 Redlands and 12 Stoney River units, and one location under the Lyndhurst Grill name. 

J. Alexander’s generated $118 million in sales in the first six months of this year, up 6.5 percent from the same period a year ago. 

The acquisition of Ninety Nine, however, should make the company a lot less sleepy. Ninety Nine more than doubles J. Alexander’s size. 

System sales have increased 8.4 percent over the past two years, to $304 million in 2016, according to NRN Second 100 data. Estimated unit volumes increased more than 7 percent over that time. With adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, of about $30 million, the acquisition comes with a multiple of just under 6.7.

But the interesting element of the deal is the stock portion. J. Alexander’s will create a new class of stock to pay for the merger. As a result, Fidelity subsidiaries Fidelity Newport Holdings LLC and Fidelity National Financial Ventures LLC, or FNFV, will get 52.5 percent J. Alexander’s stock.

And Foley will join the J. Alexander’s board.

“We believe this combination provides a larger, stronger, better diversified and more formidable player in the casual dining segment,” Foley said in a statement at the time the deal was announced. “We are excited to be involved with J. Alexander’s again and look forward to great success with the combination of these two great concepts.”

Essentially, J. Alexander’s will be considerably larger and more profitable, but it will have a giant new shareholder in its former owner.

The other question is what happens with ABRH. The company is gradually shrinking.

Last year, the company sold Max & Erma’s. Now it will lose Ninety Nine, which will leave it with three concepts -- O’Charley’s, Bakers Square and Village Inn -- along with the piemaking company Legendary Baking.

Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.

Contact Jonathan Maze at [email protected]

Follow him on Twitter: @jonathanmaze

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