Grill Concepts Inc. plans to go private through an unusual kind of stock buyback.
The decision of the Woodland Hills-based parent of the Daily Grill and Grill on the Alley restaurant chains to cease registration and trading of the company’s common stock on Nasdaq was announced last week and will be presented to shareholders for a vote in first quarter 2009.
To pull the registration of its stock, Grill is required by Securities and Exchange Commission regulations to reduce the number of its stockholders of record to below 300. The company is converting shares at a 35-1 ratio. First it will pay investors who hold fewer than 35 shares $1.50 per share. That’s a deal, because Grill’s shares have been trading below that level since late October and closed on Dec. 11 at 65 cents. Then, the remaining investors will have their shares reconverted at market price.
Grill would convert the remaining shares through what’s called a forward stock split. Each share would convert from one to 35, and stockholders would become private investors.
Delisting will save at least $750,000 in accounting, compliance fees and other costs annually.
“The company is not yet big enough to justify spending that much,” said Conrad Lyon of Global Hunter Securities LLC in Newport Beach, who said the conversion was a rarely used strategy for going private. “It’s probably a smart thing to do.”
Wayne Lipschitz, Grill’s chief financial officer, said one staff member would be laid off, saving the company $150,000 in wages. The rest of the savings will come from doing away with legal fees, printing costs and directors’ fees.
Grill’s market capitalization, the total market value of a company’s outstanding shares, was between $5 million and $6 million last week. In contrast, other upscale casual dining companies, including P.F. Chang’s China Bistro Inc. and Cheesecake Factory Inc., have market capitalizations closer to $500 million.
Grill has been struggling over the last year. Like other restaurants in its segment, Lipschitz said the company’s eateries have seen a decline in dinner sales as families eat out less and fewer professionals entertain clients.
In October, Grill’s top executives announced that they would take a 10 percent pay cut. At the same time, Grill said it was suspending its expansion plans, opening only one of four planned new restaurants next year.
The company recently reported a third-quarter net loss of $11.1 million, compared with a loss of $589,000 a year ago, as same-location sales fell 8 percent.
Whether Grill would ever go public again isn’t an immediate concern.
“We’re going to wait and see,” Lipschitz said. “Right now we’re looking at the cost benefit. We’re very focused on the future success of the company.”
