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California Pizza Kitchen to be acquired by private equity firm for $470 million [Updated]

May 25, 2011 | 11:20 am

After more than a year of searching for a buyer, California Pizza Kitchen said Wednesday that it would be acquired by the private equity firm Golden Gate Capital for $470 million, or $18.50 a share.

But another investment group quickly stepped in to say it wanted to talk about the possibility of a leveraged buyout of CPK "at or above" $19.50 a share.

CPK shares jumped $1.76 to $18.47 by about 11:45 a.m.

The Los Angeles chain is one of several publicly traded restaurant companies to be taken private in recent months as the slow economy, high commodity prices and an onslaught of new competitors has battered older brands.

If the deal is approved by CPK’s shareholders, Golden Gate Capital will begin buying up California Pizza Kitchen shares next month. Golden Gate has also purchased stakes in On the Border Mexican Grill and Romano's Macaroni Grill. It owns a number of retail outlets, including Eddie Bauer, Express and J.Jill.

Cpk “We have great respect for the California Pizza Kitchen brand,” Josh Olshansky, a managing director with Golden Gate, said in a statement. “The business that the CPK team has built, with its great product offerings, makes it an ideal fit with our long-term oriented approach to investing.”

However, in a filing with the Securities and Exchange Commission on Wednesday, the Clinton Group investment firm said it believed "there may be other alternatives to maximize shareholder value," including the possibility of a $19.50-a-share or higher leveraged recapitalization of CPK. That would involve the company borrowing money to buy up its shares.

The Clinton Group said it represented investors who own 5.1% of CPK shares, or about 1.26 million shares.

California Pizza Kitchen was founded in Los Angeles in 1985 as part of a wave of upgrading and growth in the region’s restaurant business. It became famous for developing a line of gourmet pizzas that were unusual for those times, including such offerings as barbecued chicken pizza.

Positioned as a midpriced option and located in newly developing centers, including an early foray into downtown, the company thrived. Its founders, former lawyers Larry S. Flax and Richard L. Rosenfeld, sold the company to Pepsico in 1992, and for a time gave up control. But after a series of private equity owners and a public offering, they returned to the helm, reversing such decisions as a move to replace fresh vegetables in some recipes with frozen ones.

With 265 locations in the U.S. and abroad, CPK has suffered in recent months from slow restaurant sales. Profit dipped during the first quarter of this year, to $2.1 million from $2.5 million the year before.

The company has seen success, however from its line of frozen foods sold in grocery stores, and renewed emphasis on catering. The frozen food line was recently purchased by Nestle from Kraft, a shift in ownership that could lead to greater distribution.

Like many restaurant chains, CPK has been working to sell more franchises because franchises are less risky than company-owned stores. The chain currently owns 200 of its stores and franchises or licenses its name to the rest. In a franchise the owner must bear the risk when the price of food goes up, or when customers stay home.

The sale, if consummated, would mark the end of a long road for the company, which was put on the block by Rosenfeld and Flax in April of 2010. At the time they said they would seek to maximize shareholder value, but didn't commit specifically to selling the company. A merger with another restaurant firm also was seen as a possibility.

-- Sharon Bernstein

Photo credit: Al Seib / Los Angeles Times

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