Houston Chronicle - February 11, 2001
...continued from Published News
Tilman Fertitta went to bed feeling troubled and restless.
It was Friday night, March 5, 1999, and he was about to walk away from Landry's Seafood Restaurants, the business that had made him a rich and influential man.
He had decided to bail with a financial maneuver known as a reverse buyout. Landry's would buy Consolidated Restaurants, but the executives at Dallas-based Consolidated would take over the combined company. For Fertitta, the deal essentially meant selling the company and walking away.
He was leaving because he was tired. It had taken enormous energy to transform the once-little company into a publicly owned chain with nationwide reach. Twelve years of 80-hour workweeks - with 200 days spent on the road - had left him burned out.
He also was discouraged. Landry's had stumbled financially, and its stock had taken a beating on Wall Street. Shares that had been in the 30's were suddenly trading in single digits. "I'd never seen the ugly side of Wall Street before, but I saw it then," Fertitta said. Back when Wall Street was smiling on Landry's, Fertitta sold about $100 million worth of Landry's shares, so he didn't have to worry about his future.
"I said to myself, 'I don't need this anymore,' " Fertitta said.
He listened when Consolidated - owner of the El Chico and the Spaghetti Warehouse chains - inquired about making a deal.
"Tilman was ready to exit the business, and we were interested in purchasing a public company that would expand our company in a new direction," said Consolidated Chairman John Harkey. Harkey considered it a done deal. Fertitta did, too. Until the morning of March 6, that is. "When I woke up on Saturday morning, I realized that this is what I want to be doing. This is my life," he said, referring to running Landry's. "I woke up and said to myself, 'I am not doing this deal.' "
Fertitta then set about killing the combination, a lightning-quick process that took less than 24 hours.
In the two years since that sudden reversal, it has become increasingly clear that the events of March 6 were a watershed in Landry's history. Like the survivors of a near-death experience, Fertitta and Landry's have emerged reinvigorated.
"I am a totally different person now," Fertitta said. "I have taken a different approach since then."
After waking that Saturday morning, Fertitta's first call was to Landry's corporate attorney, Steven Scheinthal.
"He called me and said, 'You have 30 minutes to get dressed and get your ass into the office,' " Scheinthal recalled. "He said, 'I'm not selling this company. This is who I am and what I do. I am not selling this company.' "
As abrupt as the call was, Scheinthal said he wasn't surprised.
"I could see that he was struggling with it," Scheinthal said. "This company defines him. It's who he is. As the deal got closer to getting done, the reality was setting in on him. He was all upset, and I knew it."
Fertitta's second call that morning was to the people in Dallas who thought they were buying Landry's.
"Tilman called me at my house and said he wanted to meet me. He said it was very important," Harkey said.
Without knowing what was afoot, Harkey and his lieutenants met Fertitta in Dallas that afternoon. The Dallas men showed up with smiles on their faces, Landry's hats on their heads and Joe's Crab Shack shirts on their backs. Their relaxed mood vanished when Fertitta explained why he had called.
"Guys, we can do this easy or we can do it hard, but this deal ain't happening," Fertitta said bluntly. "You are not getting this company."
Legally speaking, the deal was solid. It needed only the approval of Landry's shareholders and banks to be final. Some opposition had arisen to a provision that would have allowed Fertitta to buy from the combined company six restaurants in Kemah and three in Galveston. But the executives in Dallas and Houston had assumed that that would not stop the deal. "We didn't think there would be any hurdles at all," Harkey said.
But Fertitta's change of heart was another matter. He could lobby the shareholders and banks. If that failed, he could tie up the deal with a lengthy and expensive lawsuit. "If it wasn't going to be a transaction that everyone endorsed, then we decided to part company," Harkey said. "There were no hard feelings on our part."
Fertitta put it more bluntly, "I know that if my mind is made up, and if I have got something, you are going to have a very hard time getting it away from me."
So the two sides agreed to kill the deal. Landry's agreed to pay $500,000 to cover Consolidated's expenses.
Fertitta called Landry's top executives together on Monday morning. He gave them the news, plus an additional message that was vintage Tilman-speak.
"I am going to be here when all you guys are gone," he said.
Since that day, Fertitta and Landry's have attacked their business with renewed vigor. They also have altered their corporate goals, scrapping an expansion pace of opening 50 restaurants each year. Now the company is doing fewer but bigger projects.
The renewed energy and strategic shift are pushing the company's stock northward. Landry's shares jumped from a 52-week low of $6.06 on March 2000 to a 52-week high of $11.44 in January.
"They were lost in the wilderness. Now they have that company very much on track," said Allan Hickok, a stock analyst with U.S. Bancorp Piper Jaffray.
Perhaps the most compelling sign that the fires in Landry's kitchen are burning hotter is its dogged pursuit and conquest of the Rainforest Café chain. Last march, Landry's offered $120 million for the themed restaurants where animatronic gorillas and elephants cavort in lush thickets of artificial greenery.
The deal was shot down when the State of Wisconsin Investment Board, which owns 11 percent of Rainforest, object that Landry's was not paying enough. No other suitor stepped forward, and Landry's came back in September with a $75 million offer that was accepted despite further complaints from the state investment board.
"They cost their shareholders $50 million," Fertitta said. "But they found out that we are fighters. We will get in there and fight."
The owners of Consolidated Restaurants say it was a bold move for Landry's to venture beyond the world of seafood eateries and enter the perilous waters of theme restaurants.
"Tilman is an aggressive deal-maker. It is obvious from his pursuit of Rainforest that he intends to grow that business," Harkey said. "I think the scent of the deal has reinvigorated him."
Last month, Landry's opened the first Rainforest Café that it built instead of bought. Looking like a huge Incan palace, the three-story behemoth cost $20 million. It rises three stories above the Downtown Disney development in Anaheim, Calif.
Located on the front doorstep of Disneyland, Downtown Disney is a controlled, pedestrian-oriented streetscape with restaurants, stores, a big movie house and trendy clubs such as The House of Blues. Along with a new theme park called California Adventure, Downtown Disney is part of $1.4 billion expansion of the California resort.
To celebrate the grand opening, Landry's chartered a jet from Houston - it departed from a private terminal that's appropriately named Million Air - and flew 150 guests on an all-expenses paid jaunt to California. Like most things at Landry's, Fertitta took a personal hand in planning the most minute details, including negotiating room rates at a swank new hotel on the Disneyland grounds.
"We are proud to be a Houston company, and we wanted to take the leadership of this city out to California and show them what we are capable of doing," Fertitta said.
Aside from a host of Fertitta family members, the eclectic guest list included former Houston Oiler Ray Childress; socialite Caroline Farb, prominent attorney Daryl Bristow and his wife, cosmetics entrepreneur Janet Gurwich Bristow; developer Harold Farb and his wife, high-profile Realtor deluxe Diane Lokey Farb; three doctors; a few bankers and a priest. Also along for the ride but paying their own way were the mayor of Kemah and television anchors Dave Ward, Bob Allen, Bob Boudreaux and Tom Koch.
The group was ensconced in the posh Grand Californian hotel and treated to a whirlwind 30 hours of food, wine and first-class perks.
"Tilman knows how to do things 100 percent good," said Blake Tartt III, a commercial real estate broker who was one of the guests on the California Mousecapade. "Everything he does is first class. He has more passion about what he does than anyone I know. I think that is why he is so successful."
The new Rainforest Café in California will do a staggering $25 million in annual sales, Landry's estimated.
"Just look at this place," Fertitta said during the opening-night party. "It is a great concept. It just needed some changes. We changed the menu by 50 percent. We added more salads, more seafood and more pizza. We've got more items that cater to the masses and not the classes."
adventure was well-advised.
Fertitta thinks the acquisition is a slam-dunk. Before the buyout, the company was turning a profit and had $16 million in the bank. The best Rainforest locations churn out stupendous sales. A 1999 study by Nation's Restaurant News found that Rainforest had the highest sales per unit of any chain in the country.
"They just went into some bad locations in some mall developments. We will close them and go forward with the big, icon locations that are very, very successful," said Fertitta, who added that the Katy Mills location is not on the chopping block.
While Rainforest may be the biggest new item on Landry's plate, it is far from alone. The company is building a headquarters building on the West Loop that will be ready this spring. The eight-story building will cost about $13 million to build and will be solely occupied by Landry's.
"Our rent went nuts. We were spending $1 million a year for rent. You put the numbers together and it didn't make sense," Fertitta said.
"Why should I spend $15 million for 15 years worth of rent, when I can spend the same money and own my own building? My building will be worth $25 million in 25 years. It will be an asset to the company. If we continued to rent, we would own nothing after 15 years." That line of reasoning exemplifies another recent shift at Landry's. Instead of being a pure restaurant play, Landry's is now looking to build hotels, convention centers and other commercial projects.
"We are trying to not only build a restaurant company, but we are also trying to build an asset-based company with a lot of built-in value," Fertitta said.
A key part of that strategy means not opening 50 new restaurants a year, a rate of expansion that plagued Landry's in the past. As Fertitta likes to explain to friends, imagine picking 50 different stock investments each year. Your last 10 picks probably won't perform as well as your first 10. The same is true with opening restaurants by the dozen.
Landry's will open only 17 new restaurants in 2001 - 15 Joe's Crab Shacks, one Aquarium restaurant in Las Vegas and the Rainforest that opened last month in Anaheim.
Instead of dozens of smaller projects, Landry's will be taking fewer, bigger bites. The company's first venture into grand-scale development was the Kemah Boardwalk, where it operates nine restaurants on one waterfront site. Landry's is the developer and operator of the Kemah restaurants - a rare combination in the business world.
In downtown Houston, Landry's is ready to convert the old Fire Station No. 1 into a $22 million development with an Aquarium restaurant and entertainment features including a 60-foot high waterfall, a Ferris wheel, a train ride and a shark tank.
To dress up the freeway overpass that soars above the property, the company plans to hang huge inflated whales from above and paint the concrete bright colors.
Construction is scheduled to begin this spring and be completed in 18 months.
Also on Texas Avenue, Landry's has the old World Trade Center under contract. Plans call for transforming the abandoned building next to Enron Field into a hotel and restaurant. While Landry's has architectural renderings drawn up, Fertitta said the hotel will not go forward without financial assistance from the city.
Jordy Tollett, director of he city's community and entertainment facilities, said Landry's has yet to come forward with a proposal for assistance. He said he is favorably disposed to help out with tax abatement and low-cost loans that the city provides for the rehabilitation of old properties downtown.
At a victory celebration the night of the election, Fertitta gave high-fives to the mayor of Galveston and other well-wishers.
"I enjoyed that night as much as anything I have ever done," Fertitta said. "It was the tops."
Fertitta knows how close he came to missing out on the fight, celebration and all those high-fives. Except for a last minute flight to Dallas, he might have been just an observer on the sidelines.
"I don't think you could buy this company now," he said. "Not at any price."