Houston Chronicle

Fertitta to take empire public in deal

Billionair­e plans to expand more into gaming industry

- By Amanda Drane and Paul Takahashi

Tilman Fertitta, the Houston billionair­e who built a hospitalit­y and entertainm­ent empire from a single seafood restaurant in Katy, will take his Landry’s Inc. and Golden Nugget casino operations public by merging them with a special purpose acquisitio­n company. The transactio­n values the businesses at $6.6 billion, including debt.

The deal, announced Monday morning, will give Fertitta a 60 percent stake in the resulting business, which will likely be called Golden Nugget Entertainm­ent and be traded on the New York Stock Exchange. Fertitta will be the company’s chairman, president and chief executive, as well as its largest shareholde­r. The merger includes Landry’s more than 500 restaurant­s, including brands such as The Palm, Del Frisco’s and Rainforest Cafe, and five Golden Nugget casinos.

Taking his companies public will give Fertitta the capital needed to compete with other large, publicly traded companies looking to buy up casinos and restaurant­s, he said. The deal comes two years after Fertitta was outbid by Reno, Nev.-based Eldorado Resorts to take over Las Vegasbased Caesars Entertainm­ent, one of the best-known brands in the gaming industry.

“We’re looking to do some substantia­l (mergers and acquisitio­ns) in gaming,” Fertitta said. “We want to be aggressive in the M&A world.”

Fertitta said his $2 billion in equity in the new company is roughly a third of his total estimated net worth of more than $6 billion. He also owns the Houston Rockets, valued by Forbes at $2.5 billion, as well as hotels and real estate holdings that are not part of the deal with Fast Acquisitio­n. .

Fertitta said he was poised to register for an initial public offering about two months ago when his longtime bank and investing partner Jefferies Financial Group urged him to look at merging with Fast Acquisitio­n of New York, a special purpose acquisitio­n company formed last year by Sandy Beall, founder of the Ruby Tuesday restaurant chain. These specialty purposes companies, also known as blank-check companies, raise money from public investors to acquire a private company and take it public. Fast Acquisitio­n raised $200 million in August.

Blank-check companies are an increasing­ly attractive avenue to take a company public, removing barriers entreprene­urs face with traditiona­l initial public offerings, said Michael Shaub, accounting professor at Texas A&M, speaking after rumors surfaced last week that Fast Acquisitio­n was a possible merger option for Fertitta.

With blank-check companies, executives avoid going on a roadshow to make their case to institutio­nal investors before an initial public offering. The process also is less encumbered by swings in the stock market. Shares in blankcheck companies are typically priced at $10 apiece, and unlike traditiona­l IPOs, the price is not based on a valuation of the business.

“You don’t have to prove yourself in the market in the same way,” Shaub said. “I think it just removes some of the friction that comes with an IPO.”

The downside? These specialty purpose companies have to find a target quickly — within two years, Shaub said.

Several restaurant­s have gone this route during the pandemic, including gourmet burger concept BurgerFi and Drive Shack, a Top Golf competitor. Landry’s would be the largest restaurant company to go public through a blank check in years.

‘Easy and quick’

Fertitta, who took Landry’s public in 1993 through a traditiona­l IPO, said it made sense to take his companies public through a blank-check company this time around. He was familiar with Beall and other Fast executives, and over the past three years he has taken three companies — food delivery service Waitr, Golden Nugget Online Gaming and Cincinnati-based home improvemen­t distributo­r Hillman Group — public that way.

While it took nine months for Fertitta to take Landry’s public in 1993, it took him just two months through Fast. Executives at Fast Acquisitio­n will not have positions at his company, Fertitta said.

“It was just easy and quick,” he said.

Institutio­nal shareholde­rs also committed to invest around $1.2 billion in the form of a private investment in public equity at $10 per share of common stock in Fast before the transactio­n closes. The deal also includes some 31 million shares, or nearly half of all outstandin­g shares in Fertitta’s Golden Nugget Online Gaming. The resulting public company will be the 22nd largest in Houston ranked by market cap.

A Monday filing by Fast Acquisitio­n with the Securities and Exchange Commission said that as part of the deal Fertitta would be able to name seven of the initial eight members of the combined company’s board and would be able to name the eighth in about a year. He also agreed not to sell any company stock for a year after the merger closes.

The merger is the start of a major shift for Fertitta, from a major restaurate­ur to a casino mogul, he said. While he said he’s still open to growing his restaurant and hotel businesses, he said he plans to pivot his businesses in the coming years toward gaming, particular­ly online gambling.

“I’d rather own a casino that makes $50 million than 50 restaurant­s that each make $1 million,” he said. “In the years to come, you’ll see us more as a gaming company.”

Born and raised in Galveston to a restaurant family, Fertitta took over Landry’s seafood restaurant in Katy in 1986. Seven years later, he took Landry’s and its nine restaurant­s public and began a string of acquisitio­ns that included Joe’s Crab Shack, Rainforest Cafe, Saltgrass Steak House, Claim Jumper and Bubba Gump Shrimp Co.

He got into the gaming industry in 2005 when he bought the Golden Nugget casinos in Nevada. Five years later, he took Landry’s private. In the decade since, Fertitta continued to roll up more restaurant chains, particular­ly high-end steakhouse­s such as The Palm and Del Frisco’s, and construct luxury casinos and hotels.

He has completed 25 acquisitio­ns worth more than $3 billion, snapping up some companies out of bankruptcy auction.

Despite the shift to gaming, the restaurant holdings ought to appeal to investors seeking an opportunit­y in restaurant stocks with the rollout of coronaviru­s vaccines. Once the pandemic ends, many analysts predict the restaurant business to boom as people quarantine­d for more than a year rush to travel and dine out.

“If you’re buying stock in a hospitalit­y company today, you’re looking at the future,” said David Littwitz, a Houston restaurant consultant and broker. “You’re not looking at this quarter’s revenue. It’s about next year and the year after.”

Fertitta said he enjoys running his company, and despite waking up as the head of a public company, he said that “nothing is changing” with how he plans to operate.

“I’ll be the CEO of this company for the next 20 years,” he said. “As long as I’m vertical.”

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 ?? Staff file photo ?? Tilman Fertitta, who took Landry’s public in 1993 through a traditiona­l initial public offering, said it made sense to take his companies public through a blank-check company this time around.
Staff file photo Tilman Fertitta, who took Landry’s public in 1993 through a traditiona­l initial public offering, said it made sense to take his companies public through a blank-check company this time around.
 ?? Mark Mulligan / Staff photograph­er ?? Fertitta, center, also owns the Rockets, which will not be part of the deal taking most of his businesses public.
Mark Mulligan / Staff photograph­er Fertitta, center, also owns the Rockets, which will not be part of the deal taking most of his businesses public.

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