Deal Cut for Dowdy Ruby Tuesday Is No Gem

It looks like we can close the books on casual dining chain Ruby Tuesday Inc. (RT) , at least in the publicly traded market, where the company finally found a buyer in NRD Capital for the rather disappointing sum of $335 million, or $2.40 a share. Some writers have waited nearly a decade since the company nearly imploded in 2009 to quote a line in the Rolling Stones song of the same name: Goodbye, Ruby Tuesday.

It has been no secret that Ruby Tuesday has been on the block for quite some time, yet it apparently was drawing little interest. The real estate assets were the real draw; the company owned 269 or so of its locations. The operating business was a different story. Ruby Tuesday restaurants had lost their appeal to consumers in the ever-crowded casual dining space. Seemingly endless menu changes, promotions, salad bar rollouts and store redesigns could not put enough customers back in the seats, and the company hadn't turned an annual profit since 2011. Many of those years were great for restaurants, and if you could not make money in that environment, something was drastically wrong.

Despite company efforts, including the closing of 95 stores, things were not getting better. The company's first-quarter earnings report, released Monday, was completely overshadowed by the acquisition news. Same-store sales fell 5.8% for the quarter, and the company again lost money. Signs of improvements in operations have been tiny, and fleeting.

That's a big reason a deal took so long and that the terms are not great, in my view. The restaurant woes were an anchor on the company and, when combined with a desperate management team, depressed Ruby Tuesday's value. (I will admit that I am rarely happy with the takeout prices of companies I have had a stake in, including Krispy Kreme, West Marine and others.)

Ruby Tuesday was no Bob Evans (BOBE) , which sold its restaurant business last January to concentrate on the higher profit margins provided by its prepared foods business. Like Ruby Tuesday, Bob Evans was rich in real estate and overshadowed by other casual dining chains. But unlike Ruby Tuesday, Bob Evans was profitable and paid a solid dividend. Ultimately, the company was in a position to suck out every last dollar of value when it was acquired last month.

Ruby Tuesday shareholders are not so fortunate. Despite never getting back on track from an operating standpoint, the company had done some things right, namely improving the balance sheet. In 2009, facing a major crisis, the company had about $600 million in debt. Today's Ruby Tuesday, the one to be taken private, has $213 million in debt that does not mature until 2020 and $48 million in cash. At the selling price of $2.40 a share, the company's enterprise value -- market capitalization plus debt minus cash -- at about $309 million is less than half what it was in 2009.

I'm not happy with the deal, which is subject to a shareholder vote. Unless other bidders emerge (that's what happened with double-net SkullCandy last year), it is likely that this deal will be approved. This unfortunately may be a classic case of "beggars can't be choosers." (Ironically, "Beggars Banquet" was the ninth studio album released by the Stones).

After growing in number the past several years, the ranks of publicly traded restaurant names are again falling, and I expect more consolidation, including acquisitions and perhaps bankruptcy.

At the time of publication, Heller was long RT.