Rick’s Cabaret International Inc. (NASDAQ: RICK) is seeing its shares take a breather after earnings. The news is not just that revenues grew by almost 17% to $20 million, and that its net income was impacted by aggressive marketing and acquisition costs. The real news is that Rick’s is acquiring rival VCG Holding Corp. (NASDAQ: VCGH), another company with gentlemen’s clubs, a.k.a. strip clubs and topless bars, in several states. Suddenly, Rick’s is going to have a far larger footprint than before.
To show how these have matched up against each other on size, VCG’s September 2009 quarterly revenues were $13.889 million against $18.848 million for Rick’s. The June 2009 quarter figures were $13.959 million versus $20.935 million for Rick’s. Rick’s Cabaret operates 18 nightclubs in 7 states versus 20 clubs in 10 states for VCG Holding. On a combined basis, the revenues were $131.3 million for the 12 month period ending September 30, 2009. The combined EBITDA for the 12 months ended September 30, 2009 would have been approximately $25.3 million without any of the add-backs through ‘synergistic cost savings.’
What is interesting is that VCG Holding Corp. already had an offer from Chairman & CEO Troy Lowrie, Lowrie Management, LLP, an entity controlled by Mr. Lowrie, and certain other unidentified investors to acquire all the outstanding common stock of the Company for $2.10 per share in cash in 2009. The company’s own special committee determined that the offer was inadequate. The stock’s 52-week high is $2.79.
VCG’s shareholders will receive shares of Rick’s common stock based on certain exchange ratios, which will be between $2.20 and $3.80 per share based upon a weighted average of Rick’s common stock closing prices for the 20 consecutive trading days ending on the second trading day prior to the closing of the merger.
The company’s example shows a combined price of $2.66 per VCG share. Rick’s may terminate this merger if the formula dips below $8.00 per Rick’s share, but the termination is subject to the termination fee payment to VCG which will be negotiated by the parties.
The long and short of it is that the merger is now planned, but things have to hold up well for both companies. Rick’s shares are down 7.5% at $11.92 today, and the 52-week trading range is $2.44 to $12.90. The last time Rick’s stock closed under $8.00 was just on December 18.
Rick’s has steadily grown through acquisitions and there can always be more acquisitions down the road. After all, the adult-themed entertainment industry is a highly fragmented industry full of independent owners with locations all around the country.
We won’t ask if there is a dancer’s union….
JON C. OGG
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