Castle Harlan Gets Morton’s, But On Whose Terms? –

Morton’s of Chicago steakhouses are famous for their silver platters, prime aged beef and tableside menu presentations. If only the restaurant chain’s ownership and potential buyers were as civilized.

Over the past three months, Morton’s Restaurant Group (NYSE:MDG) has been the staging ground of a private equity food fight between New York investment house Castle Harlan Inc. and billionaire financier Carl Icahn. And while recent shareholder acceptance of a $17 per share buyout bid from Castle Harlan would seem to have determined the winner, it is entirely possible that Icahn himself had the most to gain by losing.

“The whole thing was a plot by Carl Icahn to gouge Castle Harlan, and I can’t believe they played along,” says Scott Keller, president of “Icahn owns [6.1%] of Morton’s [common stock], so we know for sure that Icahn will make money off of this, but it remains to be seen if Castle Harlan can.”

Spoiling For A Fight

The saga began in earnest last summer, when Morton’s management recognized that it could best shield itself from the budding economic storm by selling out to a private investor. The upscale eatery operator saw no end in sight to its falling revenues, and enlisted Greenhill & Co. LLC to aid in determining buyout interest.

A number of private equity firms including Investcorp and DB Capital Partners expressed interest, but there was little doubt that the deal was Castle Harlan’s for the taking. Not only had the New York-based investment house led a pre-IPO buyout of Morton’s back in 1989 through an affiliate fund, but the firm also had a pair of senior managers in John Castle and David Pittaway already sitting on Morton’s board of directors.

While Morton’s insisted that the auction was fair and open, not everyone agreed. The most notable critic was Barry Florescue, head of Pompano, Fla.-based BFMA Holdings Corp., a 13.3% (as of February 2002) shareholder in Morton’s who had been brushed off by company management as non-credible when he offered to buy Morton’s in July for $28.85 per share.

“We are appalled by the actions of [Morton’s CEO Allen Bernstein] and the company’s board thus far,” Florescue wrote to Bernstein in a Nov. 2001 letter. “It is clear to us that the board has failed to provide independent and ethical oversight to this process. Unless the sale process recently announced by the company is demonstrated to be fair, open and equal to all parties, [Mr. Bernstein] can expect [BFMA] to continue to be a shareholder activist. We will not stand by idly and let [Mr. Bernstein], John Castle and [Morton’s CFO] Tom Baldwin steal value away from the public stockholders.”

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