Morton’s Board Doesn’t Have to Face Buyout Suits

Morton’s Restaurant Group Inc. directors don’t have to face shareholders’ claims the board erred in not getting enough for the steakhouse chain in the $116.6 million sale to billionaire restaurateur Tilman Fertitta, a judge ruled.

Morton’s directors properly shopped around for the best price for the group of 68 high-end steakhouses and the deal’s financing wasn’t marred by conflicts of interest, Delaware Chancery Court Judge Leo Strine concluded today. Strine threw out investor suits challenging the deal.

Shareholders had no viable grounds to challenge the sale because “every major decision leading up to the transaction was approved by a board of independent and disinterested directors,” Strine said in his 34-page ruling.

Morton’s, based in Chicago, agreed to be acquired by a unit of Landry’s Inc. for $6.90 a share in cash. Fertitta is chief executive officer of Houston-based Landry’s, which has a history of acquiring restaurant chains. In 2011, Landry’s agreed to buy McCormick & Schmick’s Seafood Restaurants Inc. for about $131.6 million. Landry’s also owns the Rainforest Cafe and Bubba Gump Shrimp Co. chains.

“The court recognized that there isn’t wrongdoing in every instance where a public company is acquired,” Steve Scheinthal, Landry’s general counsel, said in a phone interview.

Nine Months

Morton’s officials said they spent nine months sorting through offers for the chain, which generated about $300 million in sales in 2010. Morton’s executives announced in 2011 they were exploring a possible sale to boost shareholder value as the U.S.’s economic uncertainties raised questions about future revenue growth.

Investors contended that Morton’s directors gave preferential treatment to Fertitta’s “inferior” bid to hasten the chain’s sale and to benefit Castle Harlan Inc., the company’s largest shareholder.

Disgruntled shareholders also alleged the original financial adviser for Morton’s, Jefferies Group LLC, wound up providing financing to Fertitta as part of the deal and created a conflict of interest.

Lawyers for Morton’s and Fertitta said the board properly reviewed offers for the chain and found the billionaire’s superior to other bids. Fertitta’s attorneys said the restaurateur only agreed to accept financing from Jefferies if Morton’s directors agreed to it.

No Bad Faith

In his decision, Strine said investors couldn’t produce evidence to show the sale “was a rushed process or that the board favored Fertitta” in accepting his bid.

Morton’s shareholders objecting to the deal also couldn’t demonstrate that directors showed bad faith in letting Jefferies provide financing for Fertitta, Strine concluded. The judge said the chain brought in another financial adviser to replace Jefferies to avoid any conflict problems.

The case is In re Morton’s Restaurant Group Inc. Shareholders Litigation, Consolidated 7122, Delaware Chancery Court (Wilmington).

To contact the reporters on this story: Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net; Phil Milford in Wilmington, Delaware at pmilford@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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