UPDATE: Morton's Puts Steakhouses Up For Sale

Morton's Restaurant Group Inc. (MRT) said its board has authorized a review of strategic options, including the possible sale of the company.

The acquirer of the high-end steakhouse chain would likely be a private-equity firm, considering full-service restaurant companies haven't been in the market for acquisitions lately, says Raymond James analyst Bryan Elliott.

The exception, he said, is Darden Restaurants Inc. (DRI). But Darden owns another steakhouse, Morton's competitor, Capital Grill, "which is a significantly better economic assessment than Morton's," Elliotte said.

A Darden spokesman said the company doesn't comment on rumors or speculation.

Morton's struggled during the recession, like many luxury-dining chains. At its lowest point, it saw a more than 20% drop in average sales per restaurant compared to its 2007 peak. The chain has seen cyclical recovery in recent quarters, but it still lags behind other competitors in sales and margins.

Investors appear supportive of sale plan as shares were recently up 11.8% to $7.20. Raymond James expects a sale to bring $8.00 to $9.50 a share.

The move comes as Morton's stands to benefit from a continued rebound in travel and luxury spending, as well as the return of expense-account meals--as two-thirds of its sales are tied to corporate spending, according to a recent Piper Jaffray analysis.

A buyer of Morton's would have its hands full, Elliotte said. Any buyer would need to develop a competitive strategy to narrow the performance gap versus Morton's peers, deal with rising beef costs and cough up capital, given Morton's cash flow is down to $10 million to $12 million.

The move for a sale was backed by the company's two largest shareholders, investment firms Castle Harlan Inc. and Laurel Crown Partners LLC, it said Wednesday. Morton's has retained Jefferies Group Inc. (JEF) to advise it in the process.

Red Robin Gourmet Burgers Inc. (RRGB) is experiencing similar pressure, as investors are pushing for action, but no official for-sale sign has been posted by the company.

In the quick-service arena, Yum Brands Inc. (YUM) is shopping around for a buyer for its Long John Silvers and A&W Restaurants chains and Wendy's/Arby's Group Inc. (WEN) is considering a sale of its Arby's sandwich chain.

"Given this point in the economic cycle, it's not outside historical norms to have several restaurants up for sale," Elliotte said. "Morton's is just a small, little company that hasn't prospered as a public company. We'll have to see if anyone steps up to the plate as a buyer."

-By Annie Gasparro and Matt Jarzemsky, Dow Jones Newswires; 212-416-2244; annie.gasparro@dowjones.com

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