Struggling Buca bought by Planet Hollywood

Reeling from a tough economy and financial mismanagement by former executives, Minneapolis restaurant chain Buca Inc. is being acquired by Planet Hollywood in a deal valued at $28.5 million, including debt.

The acquisition comes a month after the firm's Buca di Beppo chain of Italian restaurants celebrated 15 years in business. It went public in 1999.

Buca, with 88 restaurants in 25 states and the District of Columbia serving up its Italian family fare, has lost money for the past five years. Over the past four, it suffered from the costs of internal financial mismanagement that eventually sent some former executives to jail. Last year it lost $16.2 million on revenue of $245.6 million.

The $9.7 million stock portion of the acquisition -- Planet Hollywood is assuming nearly $19 million in debt -- translates into 45 cents a share, a pittance compared with what the stock was worth in the years after its public offering.

In April 2001 it was worth more than $25 a share and as recently as early 2007, it still traded in the $6 range.

Still, the acquisition price was a 41 percent premium over Monday's 32-cent close.

The deal is expected to close in less than 60 days, said Dennis Goetz, Buca's chief financial officer.

In addition to the purchase price, Planet Hollywood is giving Buca a $3.5 million secured subordinate loan to pay its operating expenses between now and the time of the closing.

"In our view, this was the best result for the shareholders," Goetz said.

The restaurants would continue to be operated under the Buca name by Planet Hollywood, but it isn't known whether all will remain open. Buca has five restaurants in the Twin Cities area, in Minneapolis, Maple Grove, Eden Prairie, Burnsville and St. Paul.

"It's difficult to exactly identify the culprit for the company's financial situation," Goetz said. "The macro economic conditions are most of it, with high gas prices and declines in home values, which makes it a really difficult time for casual dining restaurants."

While Buca's customers tend to fall at the high end of casual dining -- the average per-person tab at Buca is $18 to $19 versus $12 to $14 at all casual dining restaurants -- the chain could not avoid the trend of middle-class customers cutting spending, Goetz said.

"Throughout the dining industry, consumers are trading down," he said. "If they are using casual dining, they are spending less and coming less often. Some are trading down to quick-service restaurants. McDonald's is still doing well."

But the company's earlier internal financial problems, dating from the resignation of a former chief executive officer in 2004, also took a toll, he said.

"Significant capital was spent on the internal investigation, then bringing in a new corporate governance structure and complying with Sarbanes-Oxley regulations," Goetz said. "It was a financial drain and a distraction for management."

The company settled with the Securities and Exchange Commission without a fine.

The company's internal financial problems intensified in 2004, when former CEO Joseph Micatrotto Sr. resigned after a controversy over an Italian villa he had purchased with company funds. Micatrotto later paid $750,000 in fines, returned $65,000 to the company and was sentenced to 13 months in federal prison. Three other executives also were investigated in connection with the company's finances, one of whom also served jail time.

Buca announced last December that it was exploring strategic options and said in the first quarter that it was focused on selling the business. In January, CEO Wallace Doolin resigned and was replaced by John Bettin, the chief operating officer, and the firm laid off 13 percent of its headquarters workforce, or 15 people.

A field of many potential buyers was narrowed to Planet Hollywood, which is based in Orlando, Fla., in the past month, Goetz said.

"Planet Hollywood runs restaurants where folks come for both the food and the experience, and that's similar to Buca," Goetz said. "The Planet Hollywood people feel there are synergies between the two."

Steve Alexander • 612-673-4553