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A financial buccaneer fires across OSI's bow

By ROBERT TRIGAUX
Published June 12, 2006

Forget actor Johnny Depp's portrayal of Captain Jack Sparrow, the memorable character in the upcoming summer sequel to Pirates of the Caribbean.

The real pirate invading the Tampa Bay area is Thomas R. Hudson Jr. of Pirate Capital LLC in Norwalk, Conn. Hudson's Jolly Roger hedge funds are preparing to plunder the untapped financial treasures held by yet another major corporation here: OSI Restaurant Partners, better know to us carnivores as the former Outback Steakhouse Inc.

True to history, Pirate Capital has invested heavily in local company shares and will take no prisoners.

Known in today's financial industry as an "activist'' hedge fund for its impatient and pushy style, the firm is the same one that last year insisted that Tampa's Walter Industries split up and spin off some of its operations into separate companies. Walter complied.

OSI of Tampa is getting the latest broadside.

"We believe that you and your board have lost credibility among both investors and Wall Street research firms, with the market now heavily discounting your strategic vision and ability to generate an equity-like return on invested capital,'' Pirate Capital stated June 5 in a tart letter to Chris Sullivan, OSI co-founder and chairman.

"It is this history of significant underperformance that we feel should instill a sense of urgency among your board toward delivering improved shareholder returns,'' Pirate said.

Pirate Capital's demands? Dismantle the restaurant conglomerate encumbered by the slowing growth of the Outback beef chain by selling off such better-performers as Carrabba's, Bonefish Grill and Fleming's. And do not pursue Blue Coral, another seafood chain concept.

Ignore us, warns the hedge fund, and prepare to be boarded. Or at least watch as Pirate Capital tries in 2007 to pack OSI's board with directors of its own, and proceeds anew with its dismantling strategy.

"At great expense to OSI shareholders,'' Pirate Capital added, OSI has become an "undisciplined restaurant concept collector.''

Now wait just one minute. How dare some Connecticut Pirate in Chris Sullivan's court bully Tampa's best known entrepreneur, just as he's eager to play more golf and spend more time at his swank Pebble Beach digs in California?

Who is this upstart Pirate Capital guy Hudson to make demands of an Outback company with $3.6-billion in revenues and 95,000 employees? Not to get too parochial, but the Tampa Bay area hardly needs one of its few remaining public corporations of size to be dismembered just because of some saber-rattling.

Hudson is, no suprise, an ex-Wall Streeter, one of the new generation of corporate raiders. Investors eager to get in on his aggressive hedge funds, be forewarned. It's a cool $2-million minimum just to get in the door.

Amid buccaneer pirate, not football memorabilia in his Norwalk office, Hudson and his crew are busier than ever launching testy letters and the occasional lawsuit at companies they consider poorly run.

Armed with a college major in "entrepreneurial studies'' and a Dartmouth MBA, more than 10 years experience trading and investing in distressed assets, plus a stint as a portfolio manager at Goldman Sachs, Hudson is not one to stand down in a fight.

In a lawsuit more than six years ago, he claimed Goldman Sachs - which saw nothing wrong with entertaining clients at upscale strip clubs - illegally fired Hudson because his boss had religious objections to his extramarital affair with a co-worker. (Hudson did not win the suit.)

Like Walter Industries before it, OSI/Outback is not alone on Pirate Capital's hit list. Hudson has set his 4-year-old hedge fund hook into plenty of companies - from Atlanta power company Mirant, James River Coal and Canadian resort owner Intrawest to CKE Restaurants Inc. (owner of Hardee's) and correctional services provider Cornell Cos. - before making his ultimatums.

How times have changed.

When the young and restless Outback Steakhouse chain in 1993 grabbed hold of the promising Houston Italian restaurant called Carrabba's Italian Grill, Wall Street was pleased. Outback won kudos again in 2001 when it nabbed Bonefish Grill and broadened into seafood.

Now Outback's still-new CEO, Bill Allen, must reinvigorate the Outback corporate culture and fend off a very pesky Pirate Capital. That's a tall order. If Outback is broken up and its faster-growing parts sold to others, Tampa may be left with a diminished OSI.

What does this all boil down to? A sense of urgency. Pirate says it's lacking. OSI insists it's going full speed ahead.

Aaargh, mateys! Seems like the right moment to say: All hands on deck.

Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405.

[Last modified June 12, 2006, 06:27:35]