News | Tilman Fertitta finally lands the big one

December 03, 2010

Casey Wooten | Houston Business Journal

Original Article

Perched on the top floor of the Landry’s Restaurants Inc. Galleria-area headquarters, Tilman Fertitta’s cavernous office is packed with conference tables, mock-ups of future projects and an array of computer screens tuned to footage of the properties owned by the high-profile executive.

If anything, Fertitta — an assertive, straight-talking Galveston native who became chairman, president and CEO of Landry’s in 1986 — is a man who enjoys a challenge.

Fertitta took the Houston-based restaurant, casino and hotel operator public in 1993 and now has completed a $1.4 billion buyout to bring the company under his ownership.

The two-year campaign saw resistance from activist shareholder Bill Ackman, head of New York-based hedge fund Pershing Square Capital Management LP, and a lawsuit from a Louisiana pension fund that owned a stake in Landry’s. Fertitta’s offer swayed between $14 per share to his final bid of $24.50 per share, based on everything from Ackman’s protests to property damage from Hurricane Ike.

Following the takeover, Landry’s has gone on to buy two restaurant chains — San Clemente, Calif.-based Bubba Gump Shrimp Co. and Irvine, Calif.-based Claim Jumper Restaurants LLC, which was purchased through a bankruptcy court deal. The company already owns properties such as the Rainforest Cafe, Houston’s Downtown Aquarium, and Nevada’s Golden Nugget Hotel and Casino.

After the dust settled from his buyout effort, Fertitta sat down with the Houston Business Journal to offer a behind-the-scenes perspective on the deal.

HBJ: Why did you decide to take the company private?

FERTITTA: You don’t really have to report quarter to quarter, so you can be much more opportunistic in doing deals. When you are public, you may be doing really well, but if you are in an industry that’s not doing well, then you will be punished.

(Also) it sure will be nice not dealing with Sarbanes-Oxley.

HBJ: Did Ackman’s opposition play a role in your succession of bid raises over the past two years?

FERTITTA: Absolutely. Landry’s was a closely held company, even though it was a billion-dollar company, there were only 16 million outstanding shares, and I owned 55 percent. So when I signed the merger agreement to buy the company, because I am an insider, it was under much more scrutiny than if someone else came in. So what I had in the agreement — so I wouldn’t catch any criticism — is that I wouldn’t vote my shares for the deal.

When you are a guy like Ackman (who owned a 10 percent stake in Landry’s), he sees, ‘Well gosh there’s only 7 million shares out there,’ and all of a sudden, since I can’t vote my shares, he goes and gets a couple of million shares, and he controls the deal now. He totally drove the boat.

HBJ: On the lawsuit (brought against Fertitta and Landry’s by the Louisiana Municipal Police Employees’ Retirement System and settled for $14.5 million shortly before the buyout closed), what was it like trying to get the deal done with that impeding the way?

FERTITTA: There were no shareholder lawsuits, there were plaintiffs’ lawyers who go find somebody who owns one share that they send out there. That’s how it works; there’s no “plaintiff,” they just create the plaintiff. It’s all for the lawyers. Why would a shareholder have a problem?

Go back to all the quotes when I announced the deal, all the analysts, everybody said, ‘What a fair deal, what a good deal.’ Then a New York law firm uses the Louisiana pension fund to buy shares ..., and then they use them as plaintiffs. This is all a conspiracy and a game with plaintiffs’ lawyers.

HBJ: What about Ackman’s opposition?

FERTITTA: This is what Ackman does for a living. To him it’s just business. I’ve met with Ackman; he’s a nice guy. I was supposed to go diving with him this month in Indonesia.

HBJ: Since the deal closed, Landry’s has made a couple of acquisitions. Were those on hold until the deal was finished?

FERTITTA: That was just coincidence. A seller doesn’t let you do that. We didn’t even know about the Claim Jumper deal until after we went (private). That was a public auction. How could I put a public auction on hold?

Bubba Gump had been on the block for 12 months, and, at the very end, we came in and saw how their business had turned around and was doing very well and said, “Let us come in and negotiate this.”

HBJ: Do you plan on selling off any parts of Landry’s?

FERTITTA: I don’t want to use the word “never,” but we are not even thinking about it.

HBJ: As a native of Galveston and an owner of several major properties there, what’s your take on the city’s post-Hurricane Ike recovery?

FERTITTA: Our business is pretty much back to normal. The hotel business isn’t yet, but I think that’s more from the economy and (lack of) conventions than from Ike. If we were in a booming economy, it would be back 100 percent.

HBJ: How do you think this high-profile deal has impacted your public image?

FERTITTA: It doesn’t affect me on Wall Street at all because I am still in the public market when it comes to bonds, so from that standpoint, it’s not any different.

In Houston, it doesn’t appear to be any different, I still seem to be getting as much media coverage running a private company as a public one. But remember, I do things that people can touch every day. I’m not drilling a well in Midland, Texas, or in the Gulf of Mexico.

People eat at my restaurants, they go to my aquarium, they stay in my hotels, they go to my (Kemah) boardwalk and they drive my Bentleys (Fertitta owns Post Oak Motor Cars Ltd.). I don’t think it’s going to change because Landry’s is public or private.

Houston Business Journal, December 3, 2010