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OSI deal needs fewer okays

The acquirers upped their offer; OSI agreed to require fewer "yes" votes.

By Scott Barancik, Times Staff Writer
Published May 25, 2007


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OSI Restaurant Partners will need fewer "yes" votes next week when it asks shareholders to okay its troubled buyout deal.

About 4.4-million fewer, in fact, thanks to a previously undisclosed compromise with its would-be acquirers. That's good news for the Tampa company, if not for some institutional investors who believe the offer price is too low.

Shareholder approval of the November agreement has proved embarrassingly elusive for OSI, a holding company for Outback Steakhouse and seven other chains. Stunned investors who showed up for a final tally on the $40-per-share deal May 8 were sent away because the company needed time to solicit more "yes" votes. Two rescheduled meetings also were canceled.

The deal's outlook seemed to improve Tuesday when OSI announced that its suitors - a group that includes company insiders as well as private-equity firms Bain Capital Partners and Catterton Management - had bumped their offer price up to $41.15, possibly enough to woo short-term speculators. But the merger partners weren't taking any chances.

According to details of the amended agreement released Thursday, the parties quietly agreed to more than just a 3 percent price increase. Instead of continuing to require "yes" votes on 37.8-million of the 66.8-million shares not owned by OSI insiders - an unusually tough threshold by Wall Street standards - the parties agreed to declare victory June 5 if they received only 33.4-million "yes" votes plus one, which would still be more than some other merger deals require.

How the compromise emerged is laid out in Thursday's regulatory filings. In an attempt to jump-start the moribund deal on Monday, the acquirers submitted a revised bid: If OSI would agree to skip its next quarterly dividend as well as reduce the required "yes" votes by about 8.8-million, Bain would raise its offer price to $41.15 per share. The parties eventually compromised on a reduction of 4.4-million "yes" votes.

Though seemingly random, the various vote thresholds are based on statutory and common-law percentages. Delaware law, where OSI was incorporated, requires companies involved in merger deals to obtain "yes" votes from a simple majority of all outstanding shares; in OSI's case, that would mean getting "yes" votes on 37.8-million of the 75.5-million shares outstanding, or 50 percent plus one, including 8.8-million shares held by company insiders.

Under the original agreement, however, OSI's independent directors demanded that company insiders who were also part of the buyout group - including chairman Chris Sullivan and chief executive Bill Allen - be stricken from the vote count. It's an increasingly common way to let unaffiliated shareholders control their destiny, and to inoculate against complaints of insider control.

But rather than demand "yes" votes on a simple majority 33.4-million of the 66.8-million shares not owned by insiders, which is the current practice, the independent directors insisted on getting "yes" votes on 37.8-million of the 66.8-million, or 56.6 percent.

OSI will tally votes today on whether to adjourn its shareholder meeting until June 5.

Scott Barancik can be reached at barancik@sptimes.com or (727) 893-8751.

[Last modified May 24, 2007, 23:13:25]


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