OSI deal was manipulated from the top, some say

The top brass showed a disregard for the will of investors.

Published June 5, 2007

Don't be surprised if you hear a lot of hootin' and hollerin' outside the Tampa headquarters of OSI Restaurant Partners today.

After all, $325-million buys a lot of Dom Perignon. That's how much Outback Steakhouse co-founders Chris Sullivan, Bob Basham and Tim Gannon stand to earn this morning if investors finally approve a $3.2-billion deal to take the company private.

The Champagne may not flow so fast at Joe Shareholder's house, however. Sure, the management-led team seeking to acquire OSI recently bumped its offer to $41.15 after three failed votes at $40 per share. But some observers say the company, which declined to comment for this article, has shown contempt for the average investor.

"It's an interesting case study in management buyouts with private equity and how the process can be, for lack of a better word, manipulated," said former Wall Street lawyer Steven Davidoff, now an assistant law professor at Wayne State University Law School.

"It's been our view that the private equity firms and the insiders stand to gain the most from this transaction," Morningstar analyst John Owens recently told the Associated Press.

Because insiders such as board chairman Sullivan and CEO Bill Allen sit on both sides of the deal, OSI tried to distance them from it. Most importantly, the company created a special committee of six independent board members to handle negotiations with the acquirers.

But on a number of occasions, an unsettling zeal for the deal emerged:

How hot is Wall Street on this deal? Consider this tepid endorsement from Institutional Shareholder Services, whose support OSI cites in its proxy statement:

"We recognize the shortcomings in the process and the conflicts of interest of management and founders," ISS wrote May 29, "but given the downside of a failed transaction resulting in a loss of premium and likely continued deterioration of fundamentals, support for the transaction is warranted."

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