Bloomberg News

P.F. Chang’s Investor Sues Over $1.1 Billion Acquisition

May 23, 2012

P.F. Chang’s China Bistro Inc., the U.S.’s largest Asian full-service restaurant chain by market share, was sued over a $1.1 billion buyout bid by Centerbridge Partners LP that is designed to take the company private.

New York-based Centerbridge’s $51.50-a-share cash offer undervalues the almost 400-restaurant chain and allows P.F. Chang’s executives to unfairly reap millions of dollars in compensation, shareholder Hilary Coyne said in a Delaware Chancery Court lawsuit.

“The company has been improperly valued and shareholders will not likely receive adequate or fair value for their PFCP common stock in the buyout,” Coyne’s lawyers said in the May 18 suit.

The May 1 buyout brought the value of private-equity transactions in the restaurant industry over the past two years to $12 billion, according to data compiled by Bloomberg. Restaurant chains have been a favorite target for private investors, because their cash flow makes financing deals easy and brands can benefit from cost-cutting or expansion measures.

Joseph Berg, a spokesman for P.F. Chang’s and Susanne Clark, a Centerbridge spokeswoman, both declined to comment on Coyne’s suit.

In a filing with the U.S. Securities and Exchange Commission yesterday, P.F. Chang’s officials said the allegations in Coyne’s complaint “lack merit” and that the chain intends to “vigorously defend” the case.

‘Increasing Profitability’

Lawyers for Coyne contend that P.F. Chang’s executives have reorganized the chain and has it poised for “increasing profitability,” according to the suit. “The company’s steps to revamp its stores were taken on the shareholders’ dime, and as a result of the buyout, shareholders will not be able to reap the benefits.”

Directors allowed Centerbridge to structure the buyout in a way that is likely to allow it to be approved without a shareholder vote, the suit said.

The buyout also unfairly rewards company insiders, such as Chief Executive Officer Richard Federico and fellow executives F. Lane Cardwell Jr. and R. Michael Welborn, according to the suit. The three stand to receive a total of $17.5 million in “golden parachute compensation” under the deal, according to the complaint.

P.F. Chang’s board also erred in hiring Goldman Sachs Group Inc. (GS:US) to serve as its financial adviser for the deal because the investment bank also has worked with Centerbridge and its units, Coyne’s lawyers said.

Conflict of Interest

Over the last two years, Goldman has received more than $14 million in compensation from Centerbridge for investment banking services, according to the suit. That creates a conflict of interest for the bank in the P.F. Chang’s deal, Coyne’s attorneys contend.

New York-based Goldman Sachs was criticized by a Delaware- based judge earlier this year for its handling of conflicting interests in Kinder Morgan Inc. (KMI:US)’s $21.1 billion purchase of pipeline operator El Paso Corp. (EP:US)

Richard Siewert, a Goldman Sach’s spokesman, didn’t immediately return a call for comment on the conflict claims in the suit.

P.F. Chang’s has about 6 percent of the market share in the U.S. among Asian full-service restaurants, according to Technomic Inc., a Chicago-based researcher. Miami-based Benihana Inc. (BNHN:US) ranks second with 1.7 percent.

Pei Wei

P.F. Chang’s, which first opened in Scottsdale, Arizona, in 1993, was named for its founders Paul Fleming and Philip Chiang. It operates restaurants under both the P.F. Chang’s China Bistro and Pei Wei brands.

The company’s fast-casual brand, Pei Wei, sells noodle bowls, salads and small plates such as crab wontons and chicken lettuce wraps.

Centerbridge was founded by Mark Gallogly, a former Blackstone Group LP (BX:US) executive, and Jeffrey Aronson, who previously led the distressed-investing team at Angelo Gordon & Co. The private-equity firm last year raised $4.25 billion from investors for its second fund targeting buyouts and restructurings.

The case is Hilary Coyne v. P.F. Chang’s China Bistro Inc., 7551, Delaware Chancery Court (Wilmington).

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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