Exhibit (c)(2)
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Discussion Materials – October 22, 2009
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Disclaimer
This presentation and the information contained herein is confidential and has been prepared exclusively for the benefit and internal use of the Cowen client to whom it is directly addressed and delivered (including such client’s subsidiaries, the “Company”), in order to assist the Company in evaluating, on a preliminary basis, the feasibility of a possible transaction or transactions and does not convey any right of publication or disclosure, in whole or in part, to any other party without the prior written consent of Cowen. This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by Cowen.
The information in this presentation is based upon any management forecasts supplied to Cowen and reflects prevailing conditions and Cowen’s views as of this date, all of which are accordingly subject to change. Cowen’s estimates constitute Cowen’s judgment and should be regarded as indicative, preliminary and for illustrative purposes only. In preparing this presentation, Cowen has with your consent, assumed and relied, without independent investigation, upon the accuracy and completeness of all financial and other information provided to us by the management of the Company or which is publicly available. Cowen’s analysis is not and does not purport to be appraisals of the assets, stock or business of the Company or any other entity. Cowen does not make representations as to the actual value which may be received in connection with a transaction nor the legal, tax or accounting effects of consummating a transaction. Unless expressly contemplated hereby, the information in this presentation does not take into account the effects of a possible transaction or transactions involving an actual or potential change of control, which may have significant valuation and other effects. This presentation does not represent a fairness opinion, recommendation, valuation or opinion of any kind.
The information contained herein, as well as any other advice, services or other information provided to you by Cowen, is being provided in connection with an actual or potential mandate or engagement and may not be used or relied upon in any manner, nor are any duties or obligations created with respect thereto, except and to the extent specifically set forth in a written engagement letter or other agreement with Cowen. This presentation does not constitute a commitment by Cowen or any of its affiliates to underwrite, subscribe for or place any securities to extend or arrange credit or to provide any other service.
Cowen policy mandates that no Cowen employee may directly or indirectly offer a Company favorable research or threaten to change research as consideration or inducement for the receipt of business or compensation.
DISCUSSION MATERIALS
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Table of Contents
Page I. Situation Overview 2
II. Restaurant Market Update 4 III. Rubio’s Overview 15 IV. Valuation Overview 33 V. Strategic Alternatives Overview 46
DISCUSSION MATERIALS
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I. Situation Overview
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Situation Overview
Cowen and Company, LLC is pleased to have been selected to assist and advise Rubio’s Special Committee of the Board of Directors
The Company has received two unsolicited acquisition proposals:
??A hostile, all cash offer at $8.00 per share from the Meruelo Group and Levine Leichtman
??A subsequent all cash expression of interest from Mill Road Capital for a $9.50 per share offer
Based upon our recent conversations, Cowen has been asked to address:
??Current market conditions within the restaurant sector
??Current state of the M&A markets and, specifically, recent restaurant M&A activity
??Whether Rubio’s should adopt a shareholder rights plan (poison pill)
??The Company’s options in light of the unsolicited proposals
??The appropriate timing and process should the Company determine it is appropriate to pursue a sale process
Cowen will also assist the Company with the development of a communications strategy to handle both internal and external inquiries
OVERVIEW SITUATION I .
DISCUSSION MATERIALS
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II. Restaurant Market Update
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Restaurant Operating Environment Summary
Weak revenue/same -store sales trends have continued
??Broader weakness now includes QSR/Fast -Casual segments
??Limited visibility to near term based upon economic data
New unit growth restrained and closures taking place
??Capacity growth is limited/few unit growth stories
??Large systems being rationalized and smaller, independents closing stores
Commodities and cost-cuts have provided margin relief
??The commodity “bubble” has burst for 2009, but 2010 looks uncertain
??Internal cost-cutting/”belt tightening” has allowed for improved profitability
Restaurant stocks have rebounded strongly in 2009
??After a brutal 2008, started the year at very depressed levels
??EPS “beats” have helped, but top-line needs to improve from here
??Anticipation of economic recovery already “baked in” or perhaps overdone
Expectations for 2010 are cloudy
??Sales improvement will likely lag economic recovery
??Stocks may move “sideways” for some time as valuations have returned to normalized levels
UPDATE MARKET RESTAURANT II .
DISCUSSION MATERIALS
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Same-Store Sales Trends
Same-store sales results have been negative across all subsectors of the restaurant industry over the last few quarters
Quarterly Same -Store Sales Results — Restaurants
10.0 5.0 0.0 (5.0) (10.0) (15.0)
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3E 2004 2005 2006 2007 2008 2009
Knapp Track
Full Service—Casual Dining Full Service—Specialty Dining QSR
Coffee & Snacks Family Dining Fast-Casual
UPDATE MARKET RESTAURANT II .
Note: Per Company press releases and Wall Street research as of October 21, 2009.
DISCUSSION MATERIALS
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Declining Unit Growth Rates
While the leading chains continue to open new units, albeit at a slower pace, the overall industry is contracting due largely to declining independent unit counts
Overall Restaurant Supply Growth
(YoY Growth %)
8.0% 5.0% 2.0% (1.0%) (4.0%)
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
% Change Total Units
% Change Number of Units—Top 100 Chains
Unit Growth Rates 2004 – 2010E
In the current environment, there are very few companies still increasing units at a double digit pace
UPDATE MARKET RESTAURANT II .
Source: Public filings and Wall Street research.
(a) |
| 2009 growth excludes impact of Macaroni Grill divestiture. |
(b) |
| 2008 growth excludes impact of RARE acquisition. |
(c) |
| 2008 growth excludes impact of Mitchell’s Fish Market acquisition. |
2004 2005 2006 2007 2008 2009E 2010E
Growth Brands
Buffalo Wild Wings 24.9% 20.9% 15.9% 14.9% 13.6% 14.5% 13.7% BJ’s Restaurants 12.5% 22.2% 25.0% 23.6% 20.6% 12.2% 14.1% Chipotle Mexican Grill 34.6% 21.9% 18.8% 21.2% 18.9% 14.2% 11.3% Cheesecake Factor y 22.7% 12.0% 19.4% 23.6% 5.3% 0.0% 3.1% California Pizza Kitchen 1.8% 9.9% 9.0% 12.7% 9.1% 3.6% 6.9% McCormick & Schmick’s 23.8% 13.5% 11.9% 24.2% 12.2% 3.3% 2.1% Panera Bread 23.1% 11.6% 24.2% 19.8% 7.7% 5.1% 6.0% P.F. Chang’s 29.5% 25.1% 23.9% 22.0% 10.1% 4.3% 1.7% Red Robin Gourmet Burgers 17.0% 17.3% 16.1% 10.7% 10.2% 4.0% 3.6% Texas Roadhouse 19.1% 14.5% 13.6% 13.5% 10.2% 5.1% 5.5% Mean 20.9% 16.9% 17.8% 18.6% 11.8% 6.6% 6.8% Median 22.9% 15.9% 17.4% 20.5% 10.2% 4.7% 5.7%
Mature Brands
Brinker (a) 5.3% 7.6% 2.1% 11.0% 4.7% (0.2%) 3.7% Darden (b) 2.0% 1.7% 1.9% 2.5% 3.1% 4.1% 2.9% Morton’s 1.5% 5.8% 5.5% 6.5% 1.2% 2.4% 1.2% O’Charle y’s 9.7% 5.8% 4.0% 0.8% 1.9% 0.0% 0.3% Ruby Tuesday 12.0% 9.4% 9.3% 6.0% 1.3% (5.0%) 0.4% Ruth’s Chris (c) (3.4%) 7.0% 8.7% 18.0% 8.5% 1.3% 3.3% Mean 4.5% 6.2% 5.3% 7.5% 3.5% 0.5% 2.0% Median 3.6% 6.4% 4.8% 6.3% 2.5% 0.7% 2.0%
Micro Cap
Caribou Coffee 21.9% 29.1% 17.5% 4.3% 5.6% NA NA Cosi 3.4% 4.3% 14.6% (2.7%) (5.6%) NA NA Famous Dave’s 13.0% 21.2% 15.1% 13.1% 3.7% 10.0% (4.3%) Kona Grill 75.0% 28.6% 55.6% 28.6% 11.1% 20.0% 4.2% Rubio’s 2.1% 2.1% 8.7% 5.6% 8.8% 3.8% 7.8%
Mean 23.1% 17.0% 22.3% 9.8% 4.7% 11.3% 2.6%
Median 13.0% 21.2% 15.1% 5.6% 5.6% 10.0% 4.2%
DISCUSSION MATERIALS
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2009 EPS Targets Beginning to Stabilize
Since the beginning of 2009, EPS estimate declines have slowed significantly and, in fact, some companies have already seen low expectations move higher
Restaurant EPS Revisions from December 31, 2008
2009E EPS (a)
Company Name 12/31/2008 Current % Change
Carrols Restaurant Group $0.51 $0.97 90.2% Ruby Tuesday 0.43 0.66 53.5% DineEquity 1.46 2.20 50.7% Chipotle Mexican Grill 2.40 3.50 45.8% California Pizza Kitchen 0.60 0.80 33.3% Brinker 1.06 1.38 30.2% P.F. Chang’s 1.42 1.83 28.9% Ruth’s Chris 0.35 0.45 28.6% Bob Evans 1.81 2.29 26.5% Texas Roadhouse 0.50 0.62 24.0% Domino’s Pizza 0.75 0.84 12.0% Cheesecake Factor y 0.90 1.00 11.1% Darden 2.57 2.79 8.8% CBRL Group 2.69 2.92 8.6% BJ’s Restaurants 0.50 0.54 8.0% Starbucks 0.73 0.79 7.5% Buffalo Wild Wings 1.63 1.70 4.3% Yum! Brands 2.08 2.15 3.4% Panera Bread 2.60 2.65 1.9% McDonald’s 3.85 3.91 1.6% Peets Coffee & Tea 1.00 1.00 0.0% Jack In The Box 2.24 2.20 (1.8%) Denny’s Corp. 0.28 0.27 (3.6%) Tim Hortons 1.83 1.76 (3.9%) CKE Restaurants 0.89 0.85 (4.5%) CEC Entertainment 2.75 2.61 (5.1%) AFC Enterprises 0.72 0.68 (5.6%) Benihana 0.46 0.43 (6.5%) Red Robin Gourmet Burgers 1.74 1.61 (7.5%) Burger King 1.64 1.47 (10.4%) Papa John’s 1.72 1.48 (14.0%)
Rubio’s Restaurants 0.14 0.12 (14.3%)
Einstein Noah Restaurant Group 1.00 0.81 (19.0%) Sonic 1.06 0.74 (30.4%) Morton’s 0.30 0.18 (40.0%) McCormick & Schmick’s 0.50 0.27 (46.0%) Wendy’s/Arby’s Group 0.43 0.17 (60.5%) Landry’s Restaurants 1.11 0.28 (74.8%) Krispy Kreme 0.15 NA NM Jamba Juice (0.17) (0.19) NM Kona Grill (0.20) (0.22) NM Cosi (0.06) NA NM Caribou Coffee (0.10) 0.25 NM O’Charle y’s (0.25) 0.17 NM Luby’s (0.15) NA NM Steak N Shake (1.16) 0.37 NM Mean 3.5% Median 1.7%
Note: As of October 21, 2009.
(a) |
| Per Cowen and Wall Street research. |
UPDATE MARKET RESTAURANT II .
DISCUSSION MATERIALS
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Restaurant Stock Performance
Stock performance in 2009 has snapped back from the very depressed levels at which many stocks were trading at the end of 2008
2008 Restaurant Stock Performance
Price 2008 Company Name 12/31/08 % Change
Panera Bread $52.24 45.8% Buffalo Wild Wings 25.65 10.5% McDonald’s 62.19 5.6% Darden 28.18 1.7% CEC Entertainment 24.25 (6.6%) P.F. Chang’s 20.94 (8.3%) Jack In The Box 22.09 (14.3%) Burger King 23.88 (16.2%) Yum Brands 31.50 (17.7%) Papa John’s 18.43 (18.8%) Peets Coffee & Tea 23.25 (20.0%) Tim Hortons 28.84 (21.9%) Bob Evans 20.43 (24.1%) Texas Roadhouse 7.75 (29.9%) California Pizza Kitchen 10.72 (31.1%) BJ’s Restaurants 10.77 (33.8%) CKE Restaurants 8.68 (34.2%) CBRL Group 20.59 (36.4%) Landry’s Restaurants 11.60 (41.1%) Wendy’s 4.94 (42.3%) Sonic 12.17 (44.4%) Steak N Shake 5.95 (45.4%) Brinker 10.54 (46.1%) Krispy Kreme 1.68 (46.8%) Denny’s Corp. 1.99 (46.9%) Red Robin Gourmet Burgers 16.83 (47.4%) Starbucks 9.46 (53.8%)
Rubio’s Restaurants 3.57 (56.8%)
Cheesecake Factory 10.10 (57.4%) Chipotle Mexican Grill 61.98 (57.9%) AFC Enterprises 4.69 (58.6%) Luby’s 4.19 (58.8%) Domino’s Pizza 4.71 (64.4%) Caribou Coffee 1.36 (66.1%) McCormick & Schmick’s 4.02 (66.3%) Einstein Noah Restaurant Group 5.75 (68.3%) DineEquity 11.56 (68.4%) Morton’s 2.86 (69.3%) Carrols Restaurant Group 2.70 (71.8%) Famous Dave’s 2.90 (78.6%) Benihana 2.10 (83.5%) Ruby Tuesday 1.56 (84.0%) Ruth’s Chris 1.38 (84.6%) Kona Grill 2.20 (84.9%) O’Charley’s 2.00 (86.6%) Cosi 0.29 (87.2%) Jamba Juice 0.43 (88.4%)
Mean (44.8%) Median (46.8%)
(a) |
| Unaffected price as of October 14, 2009. |
2009 YTD Restaurant Stock Performance
Price
Company Name 10/20/09 % Change
Caribou Coffee $8.80 547.1% Ruby Tuesday 7.68 392.3% O’Charle y’s 9.54 377.0% Jamba Juice 1.79 316.3% Cosi 0.93 223.5% Ruth’s Chris 4.03 192.0% Carrols Restaurant Group 7.60 181.5% Benihana 5.53 163.3% Krispy Kreme 4.08 142.9% Einstein Noah Restaurant Group 13.00 126.1% Famous Dave’s 6.35 119.1% Starbucks 20.53 117.0% DineEquity 23.25 101.1% Steak N Shake 11.48 92.9% Cheesecake Factor y 18.98 87.9% AFC Enterprises 8.66 84.6% Domino’s Pizza 8.37 77.7% CBRL Group 35.96 74.6%
Rubio’s Restaurants (a) 6.00 68.1%
McCormick & Schmick’s 6.70 66.7% Buffalo Wild Wings 42.26 64.8% P.F. Chang’s 33.63 60.6% BJ’s Restaurants 16.65 54.6% Kona Grill 3.20 45.5% Chipotle Mexican Grill 89.14 43.8% Brinker 14.65 39.0% Morton’s 3.97 38.8% Bob Evans 27.93 36.7% Denny’s Corp. 2.70 35.7% Texas Roadhouse 10.37 33.8% California Pizza Kitchen 14.17 32.2% Papa John’s 23.26 26.2% Peets Coffee & Tea 28.91 24.3% Darden 32.60 15.7% Red Robin Gourmet Burgers 18.85 12.0% Yum Brands 35.12 11.5% CKE Restaurants 9.49 9.3% Panera Bread 56.15 7.5% CEC Entertainment 25.87 6.7% Tim Hortons 29.41 2.0% McDonald’s 58.92 (5.3%) Landry’s Restaurants 10.73 (7.5%) Sonic 11.17 (8.2%) Jack In The Box 20.00 (9.5%) Luby’s 3.67 (12.4%) Wendy’s 4.30 (13.0%) Burger King 18.01 (24.6%)
Mean 86.6% Median 45.5%
UPDATE MARKET RESTAURANT II .
DISCUSSION MATERIALS
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Current Sector Valuations
Many sectors have returned to historical valuation ranges
Median Enterprise Value / LTM EBITDA by Restaurant Sector
12.0x 10.0x 8.0x 6.0x 4.0x 2.0x
10.5x
8.1x
7.5x
7.1x
6.0x
5.8x
5.4x
Coffee and Snacks
Fast-Casual
QSR
Family Dining
Full Service -Specialty
Full Service -Casual
Micro Cap
Median 2009E P/E by Restaurant Sector
30.0x 25.0x 20.0x 15.0x 10.0x 5.0x 0.0x
28.9x
21.2x
18.0x
15.5x
12.5x
11.7x
11.4x
Coffee and Snacks
Fast-Casual
Full Service -Specialty
Micro Cap
QSR
Full Service -Casual
Family Dining
Median 2010E P/E by Restaurant Sector
25.0x 20.0x 15.0x 10.0x 5.0x 0.0x
24.1x
18.4x
15.7x
11.6x
11.3x
11.3x
11.1x
Coffee and Snacks
Fast-Casual
Full Service -Specialty
QSR
Micro Cap
Full Service -Casual
Family Dining
Note: Multiples as of October 20, 2009.
QSR includes: AFCE, BKC, CKR, DPZ, JBX, MCD, PZZA, SONC, TAST, THI, WEN and YUM. Fast-Casual includes: BAGL, CMG, COSI, PNRA and RUBO.
Coffee and Snacks includes: CBOU, JMBA, KKD, PEET and SBUX. Family Dining includes: BOBE, CBRL, DENN, LUB and SNS.
Full Service—Casual includes: BJRI, CHUX, DRI, EAT, LNY, RT, RRGB and TXRH.
Full Service—Specialty includes: BNHNA, BWLD, CAKE, CEC, CPKI, KONA, MSSR, MRT, PFCB and RUTH. Micro Cap includes: ARKR, BNHNA, CASA, CBOU, COSI, DAVE, JAX, JMBA, KONA, MSSR, MRT, PZZI and RUTH.
UPDATE MARKET RESTAURANT II .
DISCUSSION MATERIALS
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Current Sector Growth
Majority of the companies in the restaurant sector are not expecting significant growth in 2010
2009E -2010E Restaurant Sector Revenue Growth
25% 20.6% 15.7%
14.0% 10.7% 9.9%
7.3% 5.6%
5.4% 5.2% 3.9% 3.9%
3.7% 3.2% 3.0% 2.8% 2.5% 2.4% 2.4% 2.1%
5% 1.9%
(15%)
25% BWLD CMG BJRI KONA RUBO PNRA BKC EAT TXRH PFCB CKR YUM PEET MSSR BAGL MRT RRGB CPKI PZZA MCD
5% 1.8% 1.8% 1.7% 1.5% 1.4% 1.0% 0.9% 0.7% 0.5%
(0.2%) (0.3%) (0.4%) (0.5%)
(2.2%) (3.7%)
(4.8%) (6.5%) (8.5%) (15%) (10.4%) LNY BOBE CAKE CBOU CEC DPZ WEN CBRL RUTH CHUX TAST SBUX DRI RT AFCE JACK DENN JMBA SONC (11.0%) DIN
2009E -2010E Restaurant Sector EPS Growth
100% NM NM
48.1% 50% 40.0% 40% 35.3%
30% 25.0% 23.0% 22.3%
20.6% 20.0% 18.8% 18.5%
17.1% 15.7% 15.1% 15.0%
20% 13.1% 12.9% 12.1% 10% 0% (10%) 50% MRT RUBO MSSR CBOU WEN LNY SNS PZZA BWLD PEET CPKI BJRI SBUX CMG PNRA CAKE DPZ CKR JACK
40% 30%
20% 11.1%
10.3% 9.7% 9.3% 9.3% 8.7% 7.9%
6.9% 6.8% 5.6% 4.8%
10% 3.6% 3.1% 3.0% 3.0% 2.1% 0.0% 0%
(10%) (1.4%) (7.4%) BAGL AFCE TXRH YUM PFCB MCD CBRL CEC DRI RRGB BKC EAT BOBE RT SONC TAST RUTH DIN DENN
Note: Per Factset as of October 20, 2009.
UPDATE MARKET RESTAURANT II .
DISCUSSION MATERIALS 11
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M&A Market Overview
A vast majority of the M&A transactions in 2009 have been executed by strategic, as opposed to financial, buyers. U.S. M&A transaction volumes are off approximately 43% year-over-year in 2009 The weak credit markets have severely impacted the activity of private equity firms, who now are responsible for only 16% of middle market deal volume, down from 23% in 2008 YTD activity in Restaurant M&A almost non-existent
All U.S. M&A Transactions U.S. Middle Market M&A Transactions (a)
(US$ in billions) (# of Transactions) (US$ in billions) (# of Transactions)
9,853 10,467
$1,500 12,000 $600 2,025 3,000 2,104 8,713 8,214 1,919 8,043 6,704 1,670 7,268 $1,441 $1,443 400 1,337 2,000 1,000 8,000 1,508 $1,119 4,741 $532 1,139 $476 $415 $372 $774 $279 571 200 1,000 500 4,000 $536 $843 $738 $284 $247 $113 $422
0 0
0 0
2003 2004 2005 2006 2007 2008 YTD’08 (b)YTD’09 (b) 2003 2004 2005 2006 2007 2008 YTD’08 (b)YTD’09 (b)
U.S. Consumer Middle Market M&A Transactions (a) U.S. Restaurant M&A Transactions
(US$ in billions) (# of Transactions) (US$ in billions) (# of Transactions)
229 $30.0 184 300 $10.0 51 60 $29.4 45 166 $27.2 69 7.5 $9.5 45 20.0 162 200 33 32 140 $19.2 24 5.0 $6.2 19 18 30 10.0 72 100 7 $15.4 45 $5.1 $9.0 2.5 $4.6 15 $8.6 $8.9 $7.7 $0.5 $0.4 $1.5 0.0 0 0.0 $0.7 0 2003 2004 2005 2006 2007 2008 YTD’08 (b)YTD’09 (b) 2003 2004 2005 2006 2007 2008 YTD ‘08(b)YTD ‘09 (b)
Source: SDC and Cowen. Includes transactions with values exceeding $20 million.
(a) Middle Market transactions defined by deal values of $20 million to $2 billion. Consumer middle market reflects activity within Cowen’s sectors. (b) YTD represents the period from January 1 through September 30 for each indicated year.
UPDATE MARKET RESTAURANT II .
DISCUSSION MATERIALS 12
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Restaurant M&A Activity
Restaurant M&A transactions through Q3 2009 have been limited in number and size
??The sale of Church’s Chicken is the largest of the few notable deals this year
Date Enterprise EV/LTM Ann. Target Acquirer Value (a) Revenue EBITDA
09/21/09 Granite City Food & Brewery DHW Leasing $ 78.1 0.8x NM 08/21/09 Stir Crazy FlatTop Grill NA NA NA 08/13/09 Western Sizzlin Steak N Shake 21.9 1.3x NM 07/07/09 SouthEast Waffles Waffle House 36.9 0.6x NA 06/09/09 Church’s Chicken Friedman Fleischer & Lowe 370.0 0.4x 7.1x 03/18/09 Vinny T’s C&T Restaurant Management NA NA NA 01/22/09 Pat & Oscar’s (distressed) Management—John Kaufman and Tim Foley NA NA NA 01/15/09 Shane’s Rib Shack and Planet Smoothie Edmonds Capital NA NA NA
Given the trepid pace of deal activity, the ongoing weak credit markets and weak consumer spending, we expect restaurant M&A to remain weak for the remainder of the year Much of the anticipated Q4 2009 restaurant activity will likely involve distressed situations (Claim Jumper, Uno Restaurants, etc.) and reflect lower valuations and leverage levels The few deals that have occurred in 2008 and 2009 have shown that multiples have fallen towards pre-credit bubble levels
10.0x 8.8x
8.2x 8.2x
7.0x 7.3x 7.1x 7.5x 6.8x 6.5x 6.3x
EBITDA 5.7x
LTM 5.0x
Multiple
2.5x
Average 0.0x
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 YTD
UPDATE MARKET RESTAURANT II .
DISCUSSION MATERIALS 13
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Rumored Restaurant Deals in the Market
The number and quality of deals have declined meaningfully over the past 18 months, which could provide a timing advantage
Today
Carino’s
Claim Jumper (distressed) Hooters of America Kona Grill (distressed) Landry’s (distressed) Papa Gino’s Papa Murphy’s Uno Restaurants (debt restructuring) Wingstop
One Year Ago
American Restaurant (Black Angus) (restructured) Bertucci’s (restructured) Bubba Gump Dave & Buster’s Del Frisco’s Fatz Cafe Friendly’s Gordon Biersch Max & Erma’s (going private) Oregano’s Pizza Palm Restaurant Pat & Oscar’s (sold – distressed) Romano’s Macaroni Grill (sold –distressed) Smokey Bones (sold – distressed) Starr Restaurants Steak ‘n Shake Taco Bueno
UPDATE MARKET RESTAURANT II .
DISCUSSION MATERIALS 14
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III. Rubio’s Overview
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1H 2009 Operating Performance
While Rubio’s 1H 2009 results returned to profitability, the results don’t seem to portend a “break - -out” to new, higher levels
Positive 2009 same-store sales results driven by significant increase in average check
Year-over-Year Comparable Performance
1H 2008 1H 2009 % Change
Total revenues $87.3 $95.0 8.8% EBIT (a) (0.5) 1.7 NM EBITDA (a) 4.1 6.7 63.9% Net Income (a) (0.3) 1.1 NM Same-store sales (3.6%) 1.4% 5.0 pp Average check 2.0% 7.9% 5.9 pp Transactions (5.5%) (6.1%) (0.6) pp
OVERVIEW RUBIO’S III .
(a) |
| Excludes asset impairment and loss on disposal. |
DISCUSSION MATERIALS 16
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Same-Store Sales Trends
For Rubio’s, 2008 same-store sales lagged those of its competitors, but on a two-year basis results were in-line
Same -Store Sales (2004 – 2009)
8.0% 6.0% 4.0% 2.0% 0.0% (2.0%) (4.0%)
2004 2005 2006 2007 2008 1H 2009 Rubio’s Restaurants QSR Fast-Casual
Same -Store Sales Detail
2004 2005 2006 2007 2008 1H 2009
Selected QSR
AFC Enterprises (Franchised) 1.4% 3.2% 0.6% (2.1%) (2.1%) 2.1% Burger King Holdings 0.0% 3.5% 3.3% 4.5% 4.4% (0.7%) Carl’s Jr. (Franchised) 6.6% 0.7% 5.4% (0.6%) (1.6%) 0.0% Jack In The Box 4.8% 3.4% 4.6% 5.1% 0.1% (0.3%) McDonald’s 6.9% 3.9% 5.7% 6.8% 6.9% 4.6% Sonic (0.4%) 3.1% 3.6% 4.9% (0.4%) (4.5%) Pollo Tropical 10.6% 4.7% 3.2% 0.0% 0.0% (3.1%) Taco Cabana 4.8% 1.2% 1.7% 0.0% 0.0% (2.7%) Wendy’s (Franchised) 1.8% (3.1%) 0.6% 1.4% 1.3% 0.6%
Avera ge 4.1% 2.3% 3.2% 2.2% 1.0% (0.5%)
Selected Fast-Casual
Einstein Noah Restaurant Group (1.9%) 5.2% 4.5% 3.7% (0.1%) (3.0%) Chipotle 13.3% 10.2% 13.7% 10.8% 5.8% 2.0% Cosi 5.9% 6.9% 0.3% 1.4% (1.0%) (11.8%) Panera Bread (Company -Owned) 2.9% 7.4% 4.2% 1.9% 3.6% (0.2%) Pei Wei 2.0% 4.3% (2.0%) 0.0% (3.7%) (1.2%) Qdoba 10.5% 10.7% 5.1% 4.7% 0.2% (2.6%)
Average 5.5% 7.5% 4.3% 3.8% 0.8% (2.8%)
Overall Average 4.6% 4.4% 3.6% 2.8% 0.9% (1.4%)
Rubio’s Restaurants 4.3% 1.2% 2.0% 6.2% (2.4%) 1.4%
OVERVIEW RUBIO’S III .
DISCUSSION MATERIALS 17
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Unaffected Valuation
Rubio’s Valuation (US$ and shares in millions, except per share data)
Market Capitalization and Enterprise Value
Unaffected Stock Price (a) $6.00 Shares Outstanding 10.0 Effects of Options and Dilutive Securities 0.1 Fully Diluted Market Cap $61.0 Total Debt -Total Cash 7.7 Net Debt ($7.7) Enterprise Value $53.3
Financial Statistics and Estimates (b)
LTM Revenue $187.0 LTM EBITDA 12.9 2009E EPS (Mgmt. ) (b) $0.07 2009E EPS (Consensus) (c) 0.12 2010E EPS (Mgmt. ) (b) 0.07 2010E EPS (Consensus) (c) 0.23
Valuation Multiples
Enterprise Value/LTM Revenue 0.3x Enterprise Value/LTM EBITDA 4.1x 2009E P/E (Mgmt. ) 83.6x 2010E P/E (Consensus) 50.0x 2009E P/E (Mgmt. ) 82.8x 2010E P/E (Consensus) 26.1x
(a) |
| Unaffected price as of October 14, 2009. (b) Per Wall Street research. |
(c) |
| Base case scenario per management projections as of October 21, 2009. |
OVERVIEW RUBIO’S III .
DISCUSSION MATERIALS 18
|
Relative Valuation
On an unaffected basis, Rubio’s traded at a lower EBITDA multiple than the broader sector
Median Enterprise Value / LTM EBITDA by Restaurant Sector
12.0x Rubio’s:
10.5x 10.0x
8.1x
7.5x 7.1x $9.50 Offer:
8.0x
6.0x 5.8x 5.4x 7.1x 6.0x
Unaffected:
4.0x
4.1x
2.0x
Coffee and Snacks Fast-Casual QSR Family Dining Full Service—Full Service—Micro Cap Specialty Casual
On a 2010 P/E basis, Rubio’s trades at a significant premium to other fast-casual names, according to research estimates; however, we do not believe the shares are trading on a P/E basis
Median 2010E P/E by Restaurant Sector (a)
45.0x $9.50 Offer:
40.0x 41.3x
25.0x 24.1x Unaffected:
20.0x 18.4x
15.7x 26.1x
15.0x 11.6x 11.3x 11.3x 11.1x 10.0x 5.0x 0.0x Coffee and Snacks Fast-Casual Full Service—QSR Micro Cap Full Service—Family Dining Specialty Casual
Note: Multiples as of October 20, 2009. (a) 2010E EPS per Wall Street research.
QSR includes: AFCE, BKC, CKR, DPZ, JBX, MCD, PZZA, SONC, TAST, THI, WEN and YUM. Fast-Casual includes: BAGL, CMG, COSI, PNRA, and RUBO.
Family Dining includes: BOBE, CBRL, DENN, LUB and SNS.
Full Service—Casual includes: BJRI, CHUX, DRI, EAT, LNY, RT, RRGB and TXRH.
Full Service—Specialty includes: BNHNA, BWLD, CAKE, CEC, CPKI, KONA, MSSR, MRT, PFCB and RUTH. Micro Cap includes: ARKR, BNHNA, CASA, CBOU, COSI, DAVE, JAX, JMBA, KONA, MSSR, MRT, PZZI and RUTH.
OVERVIEW RUBIO’S III .
DISCUSSION MATERIALS 19
|
Management Projections: 3 Scenarios
We have done all our analysis with base case projections
2010E – 2014E Financial Projections (US$ in millions) 2010E 2011E 2012E 2013E 2014E Unit Openings
Base 15 22 28 35 38 Low 5 12 18 25 28 High 20 32 43 55 63
Same -Store Sales
Base 0.0% 3.0% 4.0% 3.0% 3.0% Low (2.0%) 0.0% 4.0% 3.0% 3.0% High 0.0% 6.0% 5.0% 3.0% 3.0%
Revenue
Base $198.3 $225.7 $259.5 $297.7 $341.3 Low 190.5 201.5 224.9 252.0 285.8 High 199.7 241.6 289.7 345.8 413.5
Restaurant Level EBITDA
Base $32.3 $36.4 $42.3 $48.7 $55.8 Low 29.9 30.6 35.9 40.5 45.9 High 32.4 40.4 48.0 56.7 67.6
EBITDA
Base $13.0 $15.1 $18.9 $23.3 $28.6 Low 11.6 11.4 14.9 17.6 21.2 High 12.8 17.8 22.5 28.9 37.8
EPS
Base $0.07 $0.11 $0.19 $0.38 $0.52 Low 0.01 (0.05) 0.07 0.20 0.28 High 0.06 0.20 0.27 0.47 0.68
Per management projections as of October 21, 2009.
OVERVIEW RUBIO’S III .
DISCUSSION MATERIALS 20
|
Historical and Projected Trend Lines
Although 2009 results have been encouraging so far, potential investors will look at historical trends to assess the likelihood of achieving future projections
Revenue Growth
20.0%
18.0% 18.0%
16.0% 15.0% 14.7% 13.9% 14.7% 14.0%
12.0% 11.5% 10.0% 9.9%
8.2% Historical Average: 8.0% 8.3% 5.9% 5.6% 6.0% 4.5% 5.3% 5.0% 4.0% 2.4% 2.0%
0.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Same -Store Sales
7.0 %
6.2% 6.0 %
5.0 %
4.3%
4.0 % 4.0%
3.0 % 3.0% 3.0% 3.0%
2.0% Historical 1.6% 1.8% Average: 2.0 % 1.8% 1.2% 1.0 % 0.0 % 0.0% (0.3%) (1.0%) (0.8%) (2.0%) (3.0%) (2.4%)
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
EBITDA (a)
$35.0
30.0 $28.6
25.0 $23.3
20.0 $18.9
15.0 $15.1 $13.0 $12.1 $11.7 $10.9 $10.8 $11.0 $9.7 $10.3
10.0 Historical Average: $6.2 $9.5 $5.3 5.0
0.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
New Company Units (Net Openings)
40 38
35 35
30 28
25 22 20
15 15 15 13
9 Historical
10 8 8
7 |
| Average: 8 |
5 |
| 3 3 1 0 |
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Note: Base case scenario per management projections as of October 21, 2009.
(a) |
| Projections include stock-based compensation expense, but exclude one-time costs. |
OVERVIEW RUBIO’S III .
DISCUSSION MATERIALS 21
|
Financial Snapshots Over Time
Selected Financial Data
1999 2004 2009E
Total Revenues $67.9 $137.4 $188.8 Restaurant Level EBITDA 13.7 23.5 29.8 EBITDA (a) 5.3 12.1 11.7 # Units 90 146 193 Average Unit Volume (in 000s) 944 942 1,000 EBITDA / Avg Unit ($) 70,658 83,841 62,002
Margins:
Restaurant Level Profit 20.2% 17.2% 15.8% EBITDA 7.8% 8.8% 6.2%
Year-over-Year Growth:
Revenue 51.8% 9.9% 5.3% Restaurant Level Profit 51.9% 48.0% 3.8% EBITDA 107.1% 128.2% 14.2%
Five Year CAGR:
Revenue 15.2% 6.6% Restaurant Level Profit 11.5% 4.8% EBITDA 18.1% (0.6%)
Note: Base case scenario per management projections as of October 21, 2009.
(a) |
| Excludes one-time items such as asset impairments / reversals and loss on disposal of assets. |
Observations
Revenue growth has been driven by continued unit growth as unit volumes have remained relatively unchanged
In the past five years, the restaurant base has grown but contracting margins has led to a decline in EBITDA
In earlier years, infrastructure leverage led to EBITDA expansion despite margin contraction at the restaurant level
OVERVIEW RUBIO’S III .
DISCUSSION MATERIALS 22
|
Projections Relative to Recent Trends
The projections suggest an acceleration of unit growth, revenue growth and margin expansion when compared to historical trends
Revenue Growth
$350.0 $341.3
CAGR = 7.6% CAGR = 14.5%
300.0 $297.7 $259.5 250.0 $225.7 $198.3 200.0 $188.8 $179.3 $169.7 $152.3 150.0 $140.8
100.0
50.0
0.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
EBITDA Growth
$35.0
CAGR = 1.8% CAGR = 21.8%
30.0 $28.6
25.0 $23.3
20.0 $18.9
$15.1 15.0 $13.0 $11.7 $10.9 $10.8 $11.0 $10.3 10.0
5.0
0.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Total Units
350.0 331
CAGR = 6.7% CAGR = 12.3%
293 300.0 258 250.0 230 208 193 200.0 186 171 149 162 150.0
100.0
50.0
0.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Average New Units/Year
40.0 Average = 9 Average = 28 38
35
30.0 28
22
20.0
15 15 13
10.0 9
7 |
|
3 |
|
0.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Note: Base case scenario per management projections as of October 21, 2009.
OVERVIEW RUBIO’S III .
DISCUSSION MATERIALS 23
|
Actual vs. Budget Variance
Historically, the Company has struggled to achieve its forecasted budgets
Actual vs. Budget Results
2006 Revenue EBITDA Net Income EPS # of Units
Actual $152.3 $10.8 ($3.5) ($0.36) 162 Budget (a) 155.1 13.4 3.7 0.37 164
Difference (1.9%) (19.6%) NM NM (1.2%)
2007
Actual 169.7 11.0 1.2 0.12 171 Budget (b) 170.3 11.7 3.1 0.32 184
Difference (0.4%) (5.4%) (61.9%) (62.7%) (7.1%)
2008
Actual 179.3 10.3 0.2 0.02 186 Budget (c) 201.9 14.7 3.9 0.38 212
Difference (11.2%) (30.2%) (95.1%) (94.7%) (12.3%)
2009
Actual (d) 188.8 11.7 0.7 0.07 193 Budget (e) 192.9 11.3 1.1 0.11 195
Difference (2.1%) 4.3% (32.1%) (32.6%) (1.0%)
(a) Budget as of October 17, 2005. (b) Budget as of October 30, 2006. (c) Budget as of April 21, 2008. (d) Budget as of October 19, 2009. (e) Budget as of April 13, 2009.
OVERVIEW RUBIO’S III .
DISCUSSION MATERIALS 24
|
Public Company Metrics
When evaluating status quo, it is also important to evaluate future prospects for trading volume, institutional ownership and research sponsorship
Stock Price (Year End)
$13.00 $12.13 12.00 11.00 $9.85 10.00 $9.35 9.00 $8.00 $8.26 8.00
Average: $6.19 $6.83 7.00 $5.98 $6.00 6.00 5.00 4.00 $3.57 $3.26 3.00 $2.56 2.00 1.00 0.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009(a)
Market Capitalization (Year End)
(US$ in $120.0 $110.7
100.0 $96.3 $88.1 $82.2 $77.6 80.0 $70.9 Average: $65.8 60.0 $56.0 $54.4
40.0 $35.5 $29.1 $22.8 20.0
0.0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009(a)
Average Daily Trading Volume
(in 000s)
128.0 130.0 120.0
40.0 37.5 35.6
31.4
30.0 28.1 Average: 26.8 26.0 (b) 23.0 22.2 22.4 20.0 19.9 13.6
10.0
0.0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009(a)
Institutional Ownership
40.0% 36.9%
30.5% 30.2% 30.0% 30.0% 28.4% 27.3%
Average: 19.9% 21.9% 20.0%
13.4% 11.8% 10.0% 8.3%
4.7%
0.0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 (a)
Research Analyst Coverage
4 |
|
3 |
| 3 3 3 |
2 |
| 2 2 2 2 Average: |
2 |
| 2 |
1 |
| 1 1 1 |
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 (a)
(a) |
| As of October 14, 2009. |
(b) |
| Average Daily Trading Volume’s average excludes 1999. |
OVERVIEW RUBIO’S III .
DISCUSSION MATERIALS 25
|
Challenges of a Micro-Cap Stock
Given the current economic and market environment, Rubio’s will likely continue to experience:
??Lack of meaningful research coverage
??Limited trading volume
??A sub-$100 million market capitalization
??Difficulty in expanding its institutional shareholder base
??Volatility in stock price performance
??Meaningful costs and risks associated with its public-company status
Without a material “break -out” in EBITDA growth to levels more in line with forward projections, the challenges of overcoming micro-cap status seem significant
OVERVIEW RUBIO’S III .
DISCUSSION MATERIALS 26
|
Expected Time Until a “Relevant” Market Cap
Depending upon actual results and relevant valuation multiples, it is difficult to project when Rubio’s will reach a market cap that will be attractive to institutional investors
Implied Market Capitalization Based on Trailing EBITDA Multiple
FYE
EBITDA 5.0x 6.0x 7.0x 8.0x
2009 $11.7 $66.3 $78.1 $89.8 $101.6 2010 13.0 68.5 81.4 94.4 107.4 2011 15.1 78.7 93.7 108.8 123.9 2012 18.9 98.5 117.4 136.2 155.1
Implied Market Capitalization Based on Forward Net Income Multiple
NTM
EPS 15.0x 18.0x 22.0x 25.0x
2009 $0.07 $10.9 $13.1 $16.0 $18.2 2010 0.11 15.9 19.0 23.3 26.4 2011 0.19 28.3 34.0 41.6 47.5 2012 0.38 57.5 69.4 85.4 98.1
Note: Base case scenario per management projections as of October 21, 2009. Basic shares outstanding of 10,035,077 from most recent public filings. Options information from most recent 10-K.
OVERVIEW RUBIO’S III .
DISCUSSION MATERIALS 27
|
Current Ownership
Currently, the Company has limited institutional sponsorship with half of the total shares outstanding held by retail investors
Institutional and Insider Ownership
Shareholder Class / Owner Shares Options Total % of Total Direct Insider Ownership
Rosewood Capital 1,526,812 44,000 1,570,812 13.2% Ralph Rubio 889,587 10,000 899,587 7.6% Other Insiders 89,117 713,298 802,415 6.7%
Total Insider Ownership 2,505,516 767,298 3,272,814 27.5% Institutional Ownership
Royce & Associates LLC 824,433—824,433 6.9% Lord Abbett & Co. LLC 578,947—578,947 4.9% Dimensional Fund Advisors, Inc. 322,568—322,568 2.7% Vanguard Group, Inc. 265,897—265,897 2.2% Greenwood Investments, Inc. 218,961—218,961 1.8% Portolan Capital Management LLC 216,372—216,372 1.8% Renaissance Technologies LLC 106,100—106,100 0.9% Barclays Global Investors NA 102,248—102,248 0.9% The California Public Employees Retirement System 100,295—100,295 0.8% Keane Capital Management, Inc. 89,000—89,000 0.7%
Total Institutional Ownership 3,008,645—3,008,645 25.3% Other Ownership
Alex Meruelo 1,016,212—1,016,212 8.5% Luis Armona 150,000—150,000 1.3% Other Holders 3,354,704 1,103,423 4,458,127 37.4%
Total Other Ownership 4,520,916 1,103,423 5,624,339 47.2% Total Shares Outstanding 10,035,077 (a) 1,870,721 (a) 11,905,798 100.0%
Source: Per Facset as of October 15, 2009.
(a) |
| Basic shares outstanding per 10-Q as of June 30, 2009. Options outstanding per 10-K as of December 31, 2009. |
OVERVIEW RUBIO’S III .
DISCUSSION MATERIALS 28
|
Institutional Ownership Summary Over Time
Three of Rubio’s top five holders were also top five holders five years ago
Institutional Holders – Today, 3 Years Ago and 5 Years Ago Shares Held Holder Name Holdings Style 6/30/2009 6/30/2006 6/30/2004
Royce & Associates LLC Value 824,433 808,200 693,900 Lord Abbett & Co. LLC Value 578,947 0 0 Dimensional Fund Advisors, Inc. Value 322,568 278,580 642,187 Vanguard Group, Inc. Index 265,897 101,866 236,274 Greenwood Investments, Inc. Value 218,961 0 0 Portolan Capital Management LLC Value 216,372 0 0 Renaissance Technologies LLC Value 106,100 0 0 Barclays Global Investors NA Index 102,248 35,752 136 The California Public Employees Retirement System Growth 100,295 17,900 17,900 Keane Capital Management, Inc. Value 89,000 0 0 Russell Investment Group Growth 41,400 0 0 Whitebox Advisors LLC Deep Value 36,904 0 0 TT International Investment Management Ltd. Value 33,763 0 0 Transamerica Investment Management LLC Aggressive Growth 27,900 0 0 Northern Trust Investments Growth 17,624 19,903 23,843 Connors Investor Services, Inc. GARP 17,500 0 0 First Republic Investment Management, Inc. Growth 4,900 0 0 Pequot Capital Management, Inc. Value 0 759,300 199,900 Magnetar Financial LLC Value 0 323,019 0 Watershed Asset Management LLC Yield 0 296,000 0 Federated Investment Management Co. Growth 0 222,100 0 Rice, Hall, James & Associates LLC Aggressive Growth 0 139,326 138,368 Wells Capital Management, Inc. Aggressive Growth 0 135,500 0 Paloma Partners Management Co. Yield 0 100,870 0 Federated MDTA LLC Aggressive Growth 0 95,400 0 Allianz Global Investors Kapitalanlagegesellschaft Value 0 43,400 0 Caxton Associates LLC Growth 0 20,902 0 Deutsche Bank Investment Management, Inc. Value 0 1,500 4,661 AXA Rosenberg Investment Management LLC Value 0 700 71,304 Thomson, Horstmann & Bryant, Inc. Value 0 0 180,800 ICM Asset Management, Inc. Deep Value 0 0 101,500 Dawson -Herman Capital Management, Inc. Aggressive Growth 0 0 42,800 Charles Schwab Investment Management, Inc. Growth 0 0 19,604 Osborne Partners Capital Management GARP 0 0 10,000
Source: Per Facset as of October 21, 2009.
Note: Bolded numbers indicate a top five position for that respective period. Excludes institutional shareholders with a peak position of fewer than 4,000 shares.
OVERVIEW RUBIO’S III .
DISCUSSION MATERIALS 29
|
Cost Basis of Top 10 Holders of Rubio’s
The offer price represents a significant premium to the cost basis of many top shareholders
Detailed Top 10 Institutional Cost Basis Analysis (as of 6/30/09)
Premium/(Discount)
Current Percent Average Price Represented by Holder Name Holdings Style Shares Held Owned (a) Per Share $9.50 (b)
Royce & Associates LLC Value 824,433 8.2% $6.69 41.9% Lord Abbett & Co. LLC Value 578,947 5.8% 6.10 55.8% Dimensional Fund Advisors, Inc. Value 322,568 3.2% 6.93 37.2% Vanguard Group, Inc. Index 265,897 2.6% 6.05 57.1% Greenwood Investments, Inc. Value 218,961 2.2% 5.08 86.9% Portolan Capital Management LLC Value 216,372 2.2% 5.47 73.7% Renaissance Technologies LLC Value 106,100 1.1% 9.08 4.6% Barclays Global Investors NA Index 102,248 1.0% 7.26 30.8% The California Public Employees Retirement SGrowth 100,295 1.0% 5.92 60.6% Keane Capital Management, Inc. Value 89,000 0.9% 5.47 73.7%
2,824,821 28.1% $6.36
Source: Per Facset as of October 15, 2009.
Note: Price paid assumed from a daily VWAP based on the closing price each day. (a) Shares outstanding as of July 30, 2009 per SEC filing. (b) Represents the offering price from Mill Road Capital.
OVERVIEW RUBIO’S III .
DISCUSSION MATERIALS 30
|
Rubio’s Current Defense Profile
Relative to other publicly traded companies, Rubio’s has above-average protections in place
The implementation of a shareholder rights plan would further strengthen the Company’s defense profile
Defense Types Analysis — Rubio’s vs. the Broader Industry
Percentage of Companies By Defense Type (a) S&P Fortune Nasdaq
RUBO 500 DJIA 500 100 Restaurants (b)
Classified Board Yes 32.53 10.00 32.59 33.72 45.83 Shareholders Cannot Call Special Meetings Yes 52.93 33.33 55.58 54.65 50.00 No Action By Written Consent Yes 71.72 70.00 72.99 63.95 68.75 Fair Price Provision No 22.42 3.33 21.65 5.81 16.67 Supermajority Vote for Mergers No 24.04 16.67 23.44 17.44 10.42 Directors Removed Only for Cause Yes 38.99 16.67 39.06 34.88 50.00 Expanded Constituency Provision No 7.68 10.00 7.59 3.49 14.58 No Cumulative Voting Yes 93.74 93.33 94.87 94.19 91.67 Blank Check Preferred Stock Yes 94.95 96.67 95.31 94.19 93.75 Poison Pill In Force No 18.20 0.00 15.18 21.00 25.00
Mean Bullet Proof Rating
5.25 3.37 1.69 3.29 3.30 3.96
Source: Per SharkRepellent — FactSet TrueCourse, Inc. as of October 18, 2009.
(a) |
| Percentages are based upon the number of eligible and active companies in the SharkRepellent. net database. |
(b) Restaurants defined as the first two digits of this company’s primary SIC code (58: Eating And Drinking Places) . There are 49 eligible and active companies in the SharkRepellent. net database in this SIC group.
OVERVIEW RUBIO’S III .
DISCUSSION MATERIALS 31
|
Merits of a Shareholder Rights Plan
A key structural defense to be considered, whether now or in the future, is a shareholder rights plan
In the event of an unsolicited offer for a company by an “Acquiring Person,” a Shareholder Rights Plan gives current shareholders the right to purchase additional common stock at a significant discount to market value. The Acquiring Person is excluded from this benefit so that significant dilution results
Does not require shareholder approval to install
Can be terminated by redeeming the Rights or amended by the Board at any time before a person becomes an Acquiring Person
Advantages
??Effective deterrent to creeping tender offers
??Deters tenders for less than all of the target’s stock, or two-tiered, front-end-loaded tenders
??Will not interfere with a negotiated transaction because of redemption feature
??Protects against self-dealing transactions by Acquiring Persons
??Board of Directors may redeem the Rights or amend the Plan at any time before a person becomes an Acquiring Person
??No balance sheet, income statement or cash flow effects prior to exercise or redemption
Disadvantages
??May increase the threat of proxy fights and lawsuits by shareholders
??Likely poorly received by institutional investors without shareholder vote
??Risk Metrics policy to vote against slate of directors at next shareholder meeting if not submitted to shareholders for a vote
OVERVIEW RUBIO’S III .
DISCUSSION MATERIALS 32
|
IV. Valuation Overview
|
Overview of Offers
The Company has received two unsolicited acquisition proposals
Summary of Unsolicited Proposals
Offer 1 Offer 2
Potential Acquirers Meruelo Enterprises and Mill Road Capital Levine Leichtman
Current Ownership 1,166,212 shares <5.0% Offer Price $8.00 $9.50 Consideration Cash Cash
Sources of Funds $13.3 m cash from Meruelo Claims to be fully financed 3.9 m cash from LLCP 52.5 m debt from LLCP 5.1 m Company cash on hand 9.3 m in existing ownership
OVERVIEW VALUATION IV .
DISCUSSION MATERIALS 34
|
Common Valuation Methodologies
Investors will utilize both forward -looking and historically based valuation techniques
Public Comparable
Analyzes the trading statistics, on an LTM EBITDA basis, of publicly
Companies traded comparable restaurant companies
Analysis
Precedent
Analyzes the acquisition multiples, typically on an LTM EBITDA basis,
Acquisition paid within the restaurant industry over the last several years
Analysis
Discounts the Company’s unlevered free cash flows at various weighted -
DCF Valuation average costs of capital and exit multiples
Analyzes the returns generated in a leveraged buyout, assuming
Leveraged Buyout management’s current projections, under various acquisition multiples,
Analysis exit multiples and capital structures
Compares the premium implied by the offer price to premiums paid for
Selected Premiums comparably sized transactions over both the spot and average trading
Analysis prices for various time periods
OVERVIEW VALUATION IV .
DISCUSSION MATERIALS 35
|
Summary Statistics
Rubio’s Valuation (US$ and shares in millions, except per share data)
Unaffected (a) Offer Rubio’s Price per Share $6.00 $9.50
Basic Shares Outstanding 10.035 10.035 Common Stock Equivalents 0.134 0.370
Fully Diluted Shares Outstanding 10.169 10.405
Implied Equity Value $61.0 $98.8
Plus: Total Debt—-Less: Cash and Equivalents (7.7) (7.7)
Implied Enterprise Value $53.3 $91.1
Financial Implied Multiple
Statistics Unaffected Offer
Enterprise Value as a Multiple of:
LTM EBITDA $12.9 4.1x 7.1x
Stock Price as a Multiple of EPS
2009E EPS (Mgmt. ) $0.07 83.6x 132.4x 2009E EPS (Consensus) (b) 0.12 50.0x 79.2x 2010E EPS (Mgmt. ) 0.07 82.8x 131.0x 2010E EPS (Consensus) (b) 0.23 26.1x 41.3x
(a) |
| Unaffected price as of October 14, 2009. |
(b) |
| Base case scenario per management projections as of October 21, 2009. (b) Wall Street research. |
OVERVIEW VALUATION IV .
DISCUSSION MATERIALS 36
|
Comparable Restaurant Analysis —Market Statistics
Select Comparable Company Analysis (US$ in millions, except per share data)
Price FD Enterprise Enterprise Value (a)/ LTM PE Ratios (b) 5-Year PE % of SGR (b) Company Name 10/20/2009 Mkt Cap Value (a) Rev EBITDA 2009E 2010E SGR (b) 2009E 2010E
Micro -Cap Restaurants
Ark Restaurants $16.16 $56.4 $58.6 0.5x 7.7x 18.1x NA NA NM NM Benihana 5.53 85.2 133.3 0.4x 4.6x 12.9x NA 12.0% 107.2% NM Caribou Coffee 8.80 178.6 160.9 0.6x 8.2x 35.2x 25.1x NA NM NM Cosi 0.93 38.0 32.8 0.3x NM NM NM NA NM NM Famous Dave’s 6.35 58.7 79.8 0.6x 5.2x 9.6x 8.7x 15.0% 64.2% 58.0% J. Alexander’s 4.09 24.3 44.1 0.3x NM NA NA NA NM NM Jamba Juice 1.79 94.3 65.8 0.2x NM NM NM NA NM NM Kona Grill 3.20 29.3 25.5 0.3x NM NM NM 25.0% NM NM McCormick & Schmick’s 6.70 99.4 116.6 0.3x 5.2x NM 16.8x 15.0% NM 111.7% Mexican Restaurants Inc 2.25 7.3 12.5 0.2x 3.1x NA NA NA NM NM Morton’s 3.97 68.1 144.4 0.4x NM 22.1x 11.3x 15.0% 147.0% 75.6% Pizza Inn 1.75 14.0 14.4 0.3x 5.6x NA NA NA NM NM Ruth’s Chris 4.03 97.4 253.8 0.7x 7.2x 9.0x 9.0x 14.0% 64.0% 64.0% Mean 0.4x 5.8x 17.8x 14.2x 16.0% 95.6% 77.3% Median 0.3x 5.4x 15.5x 11.3x 15.0% 85.7% 69.8%
Rubio’s Restaurants (unaffected) $6.00 $61.0 $53.3 0.3x 4.1x NM 26.1x 25.0% NM 104.3% Rubio’s Restaurants (at offer) $9.50 $98.8 $91.1 0.5x 7.1x NM 41.3x 25.0% NM 165.2%
(a) |
| Enterprise Value = Market Value of Equity + Net Debt + Minority Interest. (b) From Wall Street research. |
OVERVIEW VALUATION IV .
DISCUSSION MATERIALS 37
|
Restaurant M&A Transactions
Small Cap restaurant companies have generally sold in a range of 5.0x to 8.0x
Selected M&A Transactions 2005 -2009 YTD (US$ in millions, except per share data) Enterprise Value/ Date Enterprise LTM LTM
Ann. Target Acquirer Value (a) Revenue EBITDA
08/18/08 Romano’s Macaroni Grill Golden Gate Capital $ 109.9 0.2x 2.9x 06/18/08 Café Enterprises (Fatz Café) Milestone Partners 60.0 0.7x 6.3x 04/28/08 Max & Erma’s Restaurants G&R Acquisition 58.7 0.3x 8.9x 01/29/08 Great American Cookie Company NexCen Brands 93.4 3.6x 7.6x 11/06/07 Cameron Mitchell Restaurants Ruth’s Chris Steak House 92.0 0.9x 7.0x 08/07/07 Pretzel Time and Pretzelmaker NexCen Brands 28.7 4.3x 7.1x 07/05/07 Champps Entertainment F&H Acquisition Corp. (Fox & Hound) 70.9 0.3x 5.8x 06/11/07 Back Yard Burgers BBAC (Cherokee Advisors) 38.3 0.8x 7.8x 02/27/07 Bugaboo Creek Trimaran Capital (Charlie Brown’s Acq. Corp.) 24.0 0.2x 3.6x 10/11/06 Baja Fresh Caliber Capital Group 31.0 NA 6.2x 05/30/06 Catalina Restaurant Group Zensho Co. 105.0 0.4x 6.4x 12/29/05 Shari’s Circle Peak Capital 80.0 0.5x 5.7x
Mean 1.1x 6.3x Median 0.5x 6.4x
(a) Represents total consideration including the assumption of liabilities and residual cash (enterprise value) when available.
OVERVIEW VALUATION IV .
DISCUSSION MATERIALS 38
|
LBO Overview
We utilized a leveraged buyout (LBO) model to calculate the potential value of Rubio’s to a financial buyer
We assumed that a financial buyer acquires Rubio’s utilizing a combination of equity and debt
We have assumed the following financing assumptions:
??Senior debt of 2.0x 2009 adjusted EBITDA (a) • $25.3 million senior secured term loan
• Interest rate of 9.0%
??Subordinated debt of 1.0x 2009 adjusted EBITDA (a)
• Cash interest rate of 16.0%; all-in return of 18.8%
We have also assumed the following:
??2009 adjusted EBITDA of $12.6 million (a)
??Sale at end of fiscal 2014
??Management promote of 10.0% of equity upside at exit
(a) |
| Adjusted EBITDA equals to EBITDA plus stock-based compensation. |
OVERVIEW VALUATION IV .
DISCUSSION MATERIALS 39
|
Leveraged Buyout Analysis
Summary of LBO Model
Assumptions
Market Price (a) $ 6.00 Purchase Price $ 9.50 Premium / (Discount) 58.3% Shares Outstanding at Purchase Price 10.4 Transaction Equity Value $ 98.8 Transaction Enterprise Value (b) $ 91.1 2009E Adjusted EBITDA $ 12.6 Acquisition Multiple 7.2x Acquisition Date 12/31/09
Leverage
Amount Rate Senior Debt $ 25.3 9.0% Sub Debt 12.6 16.0% Total $ 37.9 -
Sources
New Senior Debt $ 25.3 New Sub Debt 12.6 Cash on Balance Sheet 7.7 Equity Required to Acquire Company 56.2 Total $ 101.9
[Graphic Appears Here]
Current Trading Statistics
Stock Price $ 6.00 Market Enterpise Value $ 53.3 Market Equity Value $ 61.0 EV / LTM EBITDA 4.1x
Financial Statistics
($ in millions) 2009E 2010E 2011E 2012E 2013E 2014E Revenue $ 188.8 $ 198.3 $ 225.7 $ 259.5 $ 297.7 $ 341.3 EBITDA $ 11.7 $ 13.0 $ 15.1 $ 18.9 $ 23.3 $ 28.6 Adjusted EBITDA (c) $ 12.6 $ 14.1 $ 16.0 $ 20.1 $ 24.7 $ 30.1 EBIT $ 1.1 $ 1.1 $ 1.4 $ 2.9 $ 6.2 $ 8.8 Revenue Growth 5.0% 13.9% 15.0% 14.7% 14.7% EBITDA Growth 10.4% 16.3% 25.0% 23.4% 22.9% EBITDA Margin 6.2% 6.5% 6.7% 7.3% 7.8% 8.4%
Leverage Statistics (End of Each Year)
($ in millions) At Close 2010E 2011E 2012E 2013E 2014E Senior Debt $ 25.3 $ 24.0 $ 21.5 $ 17.7 $ 13.9 $ 10.1 Sub Debt $ 12.6 $ 12.6 $ 12.6 $ 12.6 $ 12.6 $ 12.6 Revolver $—$ 8.9 $ 17.4 $ 26.3 $ 36.1 $ 45.0 Total Debt $ 37.9 $ 45.6 $ 51.6 $ 56.6 $ 62.6 $ 67.7 Total Debt to Adj. EBITDA 3.0x 3.2x 3.2x 2.8x 2.5x 2.2x
Note: Base case scenario per management projections as of October 21, 2009. (a) Closing price as of October 14, 2009 (b) Assumes net debt as of December 31, 2009 of ($7.7) million.
(c) |
| Adjusted EBITDA equals to EBITDA plus stock-based compensation. |
OVERVIEW VALUATION IV .
DISCUSSION MATERIALS 40
|
Sensitivity Analysis
IRR with Acquisition Price and Senior Debt Assumptions
EBITDA / Debt Total
Price $8.00 $8.75 $9.50 $10.25 $11.00 Ent. Val $74.5 $82.4 $91.1 $100.0 $108.8 2.0x 23.1% 19.9% 17.1% 14.7% 12.6% 2.5x 24.6% 20.9% 17.8% 15.1% 12.8% 3.0x 26.4% 22.1% 18.6% 15.6% 13.1% 3.5x 28.7% 23.6% 19.5% 16.2% 13.5% 4.0x 31.7% 25.5% 20.8% 17.0% 13.9%
Note: Assumes EV/EBITDA exit multiple of 7.0x.
IRR with Acquisition Price and Exit Multiple Assumptions
Multiple Exit
Price $8.00 $8.75 $9.50 $10.25 $11.00 Ent. Val $74.5 $82.4 $91.1 $100.0 $108.8 6.0x 20.8% 16.7% 13.4% 10.7% 8.3% 6.5x 23.7% 19.5% 16.1% 13.3% 10.8% 7.0x 26.4% 22.1% 18.6% 15.6% 13.1% 7.5x 28.8% 24.4% 20.8% 17.8% 15.3% 8.0x 31.1% 26.6% 23.0% 19.9% 17.3%
Note: Assumes 2.0x senior debt and 1.0x sub debt.
OVERVIEW VALUATION IV .
DISCUSSION MATERIALS 41
|
DCF Overview
We also utilized a discounted cash flow (DCF) model to calculate the intrinsic value of Rubio’s
There are two key components to the DCF
??The present value of the stream of unlevered cash flows in the projected period
??The terminal value based on EBITDA in the outyear of the projected period
2009-2014 projections used for the DCF model were those provided by Rubio’s management
We presented the DCF with discount rates ranging from 18.0% to 22.0%
We assumed exit multiples in 2014 of 6.0x to 8.0x EBITDA
OVERVIEW VALUATION IV .
DISCUSSION MATERIALS 42
|
Discounted Cash Flow Analysis
Discounted Cash Flow Analysis (US$ in millions) Projected (a) Fiscal Year Ending December 2009 2010 2011 2012 2013 2014
EBITDA $11.7 $13.0 $15.1 $18.9 $23.3 $28.6 Depreciation and Amortization 9.9 11.2 13.0 15.4 16.4 19.2 EBIT 1.8 1.7 2.1 3.5 6.8 9.4 Less: Taxes (b) 0.6 0.6 0.7 1.2 2.4 3.3 EBIAT (c) 1.2 1.1 1.4 2.3 4.4 6.1 Plus: Depreciation and Amortization 9.9 11.2 13.0 15.4 16.4 19.2 Plus: Stock-based Compensation 0.9 1.2 1.0 1.2 1.5 1.5 Less: Capital Expenditures, net (8.1) (16.0) (18.8) (21.3) (25.3) (28.5) Decrease/(Increase) in Working Capital (0.7) (1.8) 1.3 1.5 1.6 1.5 Decrease/(Increase) in Other Long-Term Assets and Liabilities 0.6 0.6 0.7 0.7 0.8 0.8
Unlevered Free Cash Flow $3.8 ($3.6) ($1.6) ($0.2) ($0.7) $0.6
Discount Rate 18.0% 20.0% 22.0%
Terminal EBITDA Multiple 6.0x 7.0x 8.0x 6.0x 7.0x 8.0x 6.0x 7.0x 8.0x
2014E EBITDA $28.6 $28.6 $28.6 $28.6 $28.6 $28.6 $28.6 $28.6 $28.6 Terminal Value 171.5 200.0 228.6 171.5 200.0 228.6 171.5 200.0 228.6 PV of Terminal Value 74.9 87.4 99.9 68.9 80.4 91.9 63.4 74.0 84.6 PV of Near-term Free Cash Flows (4.7) (4.7) (4.7) (4.7) (4.7) (4.7) (4.6) (4.6) (4.6)
Implied Enterprise Value $70.2 $82.7 $95.2 $64.2 $75.7 $87.2 $58.8 $69.4 $80.0 Implied Equity Value $77.9 $90.4 $102.9 $71.9 $83.4 $94.9 $66.5 $77.1 $87.7 Implied Equity Value per Share $7.60 $8.77 $9.84 $7.03 $8.12 $9.16 $6.52 $7.52 $8.52
Implied Enterprise Value as a 5.4x 6.4x 7.4x 5.0x 5.9x 6.8x 4.6x 5.4x 6.2x Multiple of LTM EBITDA
Note: Discounted back to December 31, 2009. Base case scenario per management projections as of October 21, 2009. (a) 2009-2014 estimates per Management.
(b) |
| Assumes tax rate of 35.0% . |
(c) |
| EBIAT reflects earnings before interest and after taxes. |
OVERVIEW VALUATION IV .
DISCUSSION MATERIALS 43
|
Valuation at Various Share Prices
Multiples at Various Share Prices (US$ in millions)
Share Price $6.00 (a) $8.00 $8.50 $9.00 $9.50 $10.00 $10.50 $11.00 $11.50 $12.00 $12.50 $13.00
Premium/(Discount)
Current Price of $6.00 $0.00 33.3% 41.7% 50.0% 58.3% 66.7% 75.0% 83.3% 91.7% 100.0% 108.3% 116.7% 1-Week Average Price of $6.15 (2.5%) 30.0% 38.1% 46.3% 54.4% 62.5% 70.6% 78.8% 86.9% 95.0% 103.1% 111.3% 30-Day Average Price of $6.44 (6.8%) 24.2% 32.0% 39.8% 47.5% 55.3% 63.1% 70.8% 78.6% 86.4% 94.1% 101.9%
3-Month Average Price of $6.25 (4.0%) 28.0% 36.0% 44.0% 52.0% 60.1% 68.1% 76.1% 84.1% 92.1% 100.1% 108.1%
6-Month Average Price of $6.01 (0.1%) 33.2% 41.5% 49.9% 58.2% 66.5% 74.8% 83.2% 91.5% 99.8% 108.1% 116.5% 52-Week High of $7.85 (23.6%) 1.9% 8.3% 14.6% 21.0% 27.4% 33.8% 40.1% 46.5% 52.9% 59.2% 65.6% 52-Week Low of $2.16 177.8% 270.4% 293.5% 316.7% 339.8% 363.0% 386.1% 409.3% 432.4% 455.6% 478.7% 501.9%
Implied Equity Value $61.0 $82.2 $87.5 $93.0 $98.8 $104.7 $110.6 $116.5 $122.4 $128.3 $134.3 $140.2 Implied Enterprise Value (b) $53.3 $74.5 $79.8 $85.3 $91.1 $97.0 $102.9 $108.8 $114.7 $120.6 $126.6 $132.5 Fully Diluted Shares (Basic + CSEs) 10.169 10.273 10.292 10.330 10.405 10.472 10.534 10.593 10.646 10.695 10.741 10.786 Implied Enterprise Value/: LTM EBITDA 4.1x 5.8x 6.2x 6.6x 7.1x 7.5x 8.0x 8.4x 8.9x 9.4x 9.8x 10.3x Implied Equity Value/: 2009E EPS (Mgmt. ) (c) 83.6x 111.5x 118.4x 125.4x 132.4x 139.3x 146.3x 153.3x 160.2x 167.2x 174.2x 181.1x 2009E EPS (Consensus) (d) 50.0x 66.7x 70.8x 75.0x 79.2x 83.3x 87.5x 91.7x 95.8x 100.0x 104.2x 108.3x 2010E EPS (Mgmt. ) (c) 82.8x 110.4x 117.2x 124.1x 131.0x 137.9x 144.8x 151.7x 158.6x 165.5x 172.4x 179.3x 2010E EPS (Consensus) (d) 26.1x 34.8x 37.0x 39.1x 41.3x 43.5x 45.7x 47.8x 50.0x 52.2x 54.3x 56.5x
(a) |
| Unaffected price as of October 14, 2009. |
(b) |
| Cash and debt figures from the period ending June 30, 2009. |
(c) |
| Base case scenario per management projections as of October 21, 2009. (d) Per Wall Street Research. |
OVERVIEW VALUATION IV .
DISCUSSION MATERIALS 44
|
Premiums Paid Analysis
Spot Prices
Premiums Prior to Closing Price 1-Day 1-Week 1-Month 3-Months 6-Months All Transactions from 2000—2009 YTD with $75.0 mm—$150.0 mm Enterprise Values
Min (17.0%) (23.5%) (50.3%) (58.7%) (42.2%) Mean 41.4% 43.3% 48.7% 56.9% 61.1% Median 32.0% 35.0% 39.4% 42.1% 40.1% Max 309.4% 288.9% 369.8% 471.8% 542.6%
Implied Premium to $8.00 1st Offer at Spot Prices Prior to October 14, 2009:
1-Day Spot ($6.03) 32.7%———1-Week ($6.25)—28.0%——
1-Month ($6.28)—- 27.4%—-
3-Month ($6.07)—— 31.8%—
6-Month ($4.27)———87.4%
Implied Premium to $9.50 2nd Offer at Spot Prices Prior to October 14, 2009:
1-Day Spot ($6.03) 57.5%———1-Week ($6.25)—52.0%——
1-Month ($6.28)—- 51.3%—-
3-Month ($6.07)—— 56.5%—
6-Month ($4.27)———122.5%
Average Prices
Premiums Prior to Average Price
1-Week 1-Month 3-Months 6-Months All Transactions from 2006—2009 YTD with $75.0 mm—$150.0 mm Enterprise Values
Min (9.7%) (46.6%) (53.7%) (45.8%) Mean 39.3% 44.5% 48.6% 50.0% Median 30.5% 34.5% 36.9% 37.9% Max 540.0% 440.1% 412.4% 269.1%
Implied Premium to $8.00 1st Offer at Average Prices Prior to October 14, 2009:
1-Week Average ($6.15) 30.0%——
1-Month Average ($6.44)—24.2%—-
3-Month Average ($6.25)—- 28.0%—
6-Month Average ($6.05)—— 32.3%
Implied Premium to $9.50 2nd Offer at Average Prices Prior to October 14, 2009:
1-Week ($6.15) 54.4%——
1-Month ($6.44)—47.5%—-
3-Months ($6.25)—- 52.0%—
6-Month Average ($6.05)—— 57.1%
Note: As of October 14, 2009.
OVERVIEW VALUATION IV .
DISCUSSION MATERIALS 45
|
V. Strategic Alternatives Overview
|
Strategic Alternatives Overview
Rubio’s is currently considering two primary alternatives
Status Quo
Sale
OVERVIEW ALTERNATIVES STRATEGIC V .
DISCUSSION MATERIALS 47
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Status Quo
Status quo remains a viable alternative to drive shareholder value
Under status quo, the Company would:
??Continue to operate as a public company
??Execute current growth plan
??Consider other growth avenues such as franchising and joint ventures
Advantages of Status Quo
Opportunity to demonstrate positive performance and momentum
Opportunity for share-price appreciation if Company proves growth strategy over next couple of years
Maintains control of Company’s direction and culture
Leverages current infrastructure and management team
Status Quo Issues to Consider
Costs and risks of being a “micro -cap” stock
Business execution risk (increasing competition, difficult consumer environment, risk of executing growth plan)
Costs and risks of being a public company
Stock price pressure from reduced growth and illiquidity
OVERVIEW ALTERNATIVES STRATEGIC V .
DISCUSSION MATERIALS 48
|
The Potential Value of Status Quo —EBITDA
The ability to drive future shareholder value depends on Rubio’s future performance and future market multiples
Projected Potential Value at LTM EBITDA Multiples (US$ in millions, except per share data) 2009E 2010E 2011E 2012E 2013E
EBITDA (a) $11.7 $13.0 $15.1 $18.9 $23.3
% growth 6.6% 10.4% 16.3% 25.0% 23.4%
Unaffected Enterprise Value (b) $53.3 Unaffected Equity Value (b) $61.0 Unaffected Stock Price (b) $6.00 Unaffected LTM EBITDA Multiple 4.1x
Future Enterprise Values at Various EBITDA Multiples
4.0x $ 51.9 $ 60.3 $ 75.4 $ 93.0 5.0x 64.9 75.4 94.3 116.3 6.0x 77.8 90.5 113.1 139.5 7.0x 90.8 105.6 132.0 162.8 8.0x 103.8 120.6 150.8 186.1 Future Stock Prices at Various EBITDA Multiples (b) 4.0x $ 5.49 $ 6.52 $ 8.38 $ 10.31 5.0x 6.72 7.94 10.03 12.28 6.0x 7.95 9.31 11.63 14.24 7.0x 9.14 10.60 13.22 16.19 8.0x 10.25 11.87 14.80 18.14 Annualized Return to Current Market Price at Various EBITDA Multiples (c) 4.0x (7.0%) 3.8% 11.0% 13.7% 5.0x 9.8% 13.5% 17.3% 18.5% 6.0x 26.1% 22.0% 22.9% 22.8% 7.0x 41.5% 29.3% 27.9% 26.6% 8.0x 55.4% 36.1% 32.4% 30.0% Annualized Return to $9.50 Offer Price at Various EBITDA Multiples 4.0x (36.3%) (15.6%) (3.8%) 2.0% 5.0x (24.8%) (7.8%) 1.7% 6.3% 6.0x (13.7%) (0.9%) 6.5% 10.1% 7.0x (3.1%) 5.1% 10.8% 13.5% 8.0x 6.4% 10.6% 14.8% 16.6%
(a) |
| Base case scenario per management projections as of October 21, 2009. (b) Stock price as of October 14, 2009. |
(c) |
| Future stock prices discounted to October 14, 2009. |
OVERVIEW ALTERNATIVES STRATEGIC V .
DISCUSSION MATERIALS 49
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The Potential Value of Status Quo —EBITDA
Discounting future stock prices at the cost of equity implies limited upside from recent trading levels
Projected Potential Value at LTM EBITDA Multiples (US$ in millions, except per share data) 2009E 2010E 2011E 2012E 2013E
EBITDA (a) $11.7 $13.0 $15.1 $18.9 $23.3
% growth 6.6% 10.4% 16.3% 25.0% 23.4%
Unaffected Enterprise Value (b) $53.3 Unaffected Equity Value (b) $61.0 Unaffected Stock Price (b) $6.00 Unaffected LTM EBITDA Multiple 4.1x
Future Enterprise Values at Various EBITDA Multiples
4.0x $ 51.9 $ 60.3 $ 75.4 $ 93.0 5.0x 64.9 75.4 94.3 116.3 6.0x 77.8 90.5 113.1 139.5 7.0x 90.8 105.6 132.0 162.8 8.0x 103.8 120.6 150.8 186.1 Future Stock Prices at Various EBITDA Multiples (b) 4.0x $ 5.49 $ 6.52 $ 8.38 $ 10.31 5.0x 6.72 7.94 10.03 12.28 6.0x 7.95 9.31 11.63 14.24 7.0x 9.14 10.60 13.22 16.19 8.0x 10.25 11.87 14.80 18.14 Implied Current Stock Price (c) 4.0x $ 4.40 $ 4.35 $ 4.67 $ 4.78 5.0x 5.39 5.30 5.58 5.70 6.0x 6.37 6.22 6.47 6.60 7.0x 7.33 7.08 7.36 7.51 8.0x 8.21 7.93 8.24 8.41
OVERVIEW ALTERNATIVES STRATEGIC V .
(a) |
| Base case scenario per management projections as of October 21, 2009. (b) Stock price as of October 14, 2009. |
(c) |
| Future stock prices discounted to October 14, 2009 using cost of equity at 20.0% . |
DISCUSSION MATERIALS 50
|
The Potential Value of Status Quo —Forward P/E
We believe it is unlikely the company will trade based on its current P/E multiple
A lack of significant ramp in absolute EPS until 2012 makes value creation difficult to assess
Projected Potential Value at Forward P/E Multiples (US$ in millions, except per share data) 2009E 2010E 2011E 2012E 2013E
Forward Year EPS (a) $0.07 $0.11 $0.19 $0.38 $0.52
% growth (99.3%) 45.3% 78.6% 100.7% 37.0%
Unaffected Equity Value (b) $61.0 Unaffected Stock Price (b) $6.00 Unaffected 2010 P/E Multiple 26.1x
Future Stock Prices at Various P/E Multiples (b)
15.0x $ 1.58 $ 2.82 $ 5.66 $ 7.76 18.0x 1.90 3.39 6.80 9.31 20.0x 2.11 3.76 7.55 10.34 22.0x 2.32 4.14 8.31 11.38 25.0x 2.63 4.70 9.44 12.93 Annualized Return to Current Market Price at Various P/E Multiples (c) 15.0x (66.7%) (28.9%) (1.8%) 6.3% 18.0x (61.3%) (22.8%) 4.0% 11.0% 20.0x (57.8%) (19.0%) 7.4% 13.8% 22.0x (54.3%) (15.4%) 10.7% 16.4% 25.0x (49.2%) (10.4%) 15.1% 20.0% Annualized Return to $9.50 Offer Price at Various P/E Multiples 15.0x (77.2%) (42.2%) (14.9%) (4.7%) 18.0x (73.5%) (37.2%) (9.9%) (0.5%) 20.0x (71.1%) (34.2%) (6.9%) 2.0% 22.0x (68.7%) (31.3%) (4.1%) 4.4% 25.0x (65.2%) (27.2%) (0.2%) 7.6%
(a) |
| Base case scenario per management projections as of October 21, 2009. (b) Stock price as of October 14, 2009. |
(c) |
| Future stock prices discounted to October 14, 2009. |
OVERVIEW ALTERNATIVES STRATEGIC V .
DISCUSSION MATERIALS 51
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Management vs. Consensus
When considering status quo, it is important to understand the implications of Rubio’s current projections being meaningfully below current consensus estimates
2009E and 2010 Projections (US$ in millions, except per share data)
Management (a) Consensus (b) % Difference
2009E Revenue $188.8 $190.0 (0.6%) 2009E EBITDA 11.7 12.5 (6.4%) 2009E EPS 0.07 0.12 (40.2%)
2010E Revenue $198.3 $208.9 (5.1%) 2010E EBITDA 13.0 15.1 (13.9%) 2010E EPS 0.07 0.23 (68.5%)
(a) |
| Base case scenario per management projections as of October 21, 2009. (b) Per Factset as of October 21, 2009. |
OVERVIEW ALTERNATIVES STRATEGIC V .
DISCUSSION MATERIALS 52
|
Sale of the Company
The Special Committee could also pursue a sale of the Company in order to maximize near-term shareholder value
In the event the Special Committee elects to pursue a sale of the Company, it will need to explore the various process options
Advantages
Provides investors a premium to current stock price
Provides investors a guaranteed return, regardless of future execution risk
Provides immediate liquidity to shareholders
Removes Company from public scrutiny
Eliminates public-company costs and risks
Issues to Consider
May be challenging to maximize valuation given current macroeconomic environment
The Company is trading at a relatively low EBITDA valuation
Difficult financing markets have materially reduced M&A activity
Sacrifices potential upside for investors
Management and Board distraction
OVERVIEW ALTERNATIVES STRATEGIC V .
DISCUSSION MATERIALS 53
|
Sale Process Alternatives
Cowen will work with the Board and management to execute a process that seeks to maximize shareholder value while minimizing distractions
Description of Process
Level of Disclosure
Number of Potential Buyers
Approximate Time Required
Advantages
Disadvantages
Closed Negotiation
Screen previously identified interested parties and conduct negotiations with those most likely to consummate a transaction on terms favorable to sellers; Seriatim approach works on them one-at-a-time
Extremely limited contacts made; continued discussions with parties who have already expressed interest
Five or fewer
Two months or less; Seriatim can be longer
? Speedy execution
? Maximum confidentiality
? Minimum business interruption
? Most flexibility to terminate process
? May not realize maximum value
? Possibility that no buyer will proceed
? Greater potential for Board of Directors liability
Targeted, High-Level Solicitation
High-level approach to selected prospective buyers; executive summary -type presentation; no pre-established deadlines of formal process
Limited high-level discussions without prior dissemination of selling memorandum
Usually 10 or fewer
Two to five months
? Speedy execution
? Confidentiality
? Avoid perception the Company is shopped
? Requires substantial top-level management time commitment
? Risks missing buyer who would pay most
Controlled Sale
Wide range of logical potential buyers contacted based upon likelihood of paying a high premium for the Company and financial ability to consummate a transaction
Limited disclosure of existence of sale process
Typically 15 to 25
Three to six months
? Stimulates sense of competition
? Better control of information than in broad auction
? Delay in execution
? Risk of access to confidential material to “tire kickers”
Broad Based Public Auction
Wide range of potential buyers contacted and indications of interest elicited from all interested prospective buyers
General public disclosure through press release
Typically 30 or more
Three to six months
? May increase likelihood that maximum value is achieved if asset has broad appeal
? May identify unexpected buyers
? Stimulates sense of competition
? Delay in execution
? Greater risk of access to confidential material by “tire kickers”
? May result in “high traffic” that interferes with business
? Difficult if no sale realized
OVERVIEW ALTERNATIVES STRATEGIC V .
DISCUSSION MATERIALS 54
|
Roles and Responsibilities
Phase I: Organization
Phase II: Contact and Marketing
Phase III: Business Due Diligence, Synergy Discussions and Initial Bids
Phase IV: Final Negotiations, Confirmatory Diligence and Signings
Cowen
??Identify potential strategic partners
??Finalize projections
??Finalize management presentations
??Finalize process
??Contact potential partners
??Negotiate NDAs
??Schedule management meetings
??Identify diligence list
??Formulate view of synergies
??Management meetings
??Facilitate and time discussions
??Solicit indications
??Facilitate diligence
??Review indications
??Negotiate terms as appropriate
??Contract discussions
Legal
Review CA Identify any legal issues/concerns
Assist in compiling legal diligence items Assist in NDA negotiations
Review indications Negotiate terms Confirmatory diligence Contract discussions
Management
??Identify potential strategic partner
??Finalize projections
??Prepare management presentations
??Contact potential partners (if appropriate)
??Assist in NDA negotiations
??Schedule management meetings
??Formulate views of synergies
??Attend management meetings
??Respond to diligence requests
??Review indications
??Confirmatory diligence
??Contract discussions
Board
Determine process and objectives Approve universe of partners to approach
Receive contact updates Provide direction as necessary
Receive contact updates Provide direction as necessary
Review indications Direct discussions Decide next steps Approve agreement, if appropriate
OVERVIEW ALTERNATIVES STRATEGIC V .
DISCUSSION MATERIALS 55
|
Phase I — Organization
Phase I: Organization
Phase II: Contact and Marketing
Phase III: Business Diligence, Synergy Discussions and Initial Bids
Phase IV: Final Negotiations, Confirming Diligence and Signings
Timing: 1-2 weeks
Cowen due diligence and preparation of marketing materials
Develop in-depth understanding of Company and potential issues Work with Company to finalize projection model Develop positioning of Company Prepare marketing materials
Identify potential partners
Determine optimal process strategy
Prepare Company for process
Prepare confidentiality agreement Working group Board Management Employees
Legal issues/representations and warranties Management presentation
OVERVIEW ALTERNATIVES STRATEGIC V .
DISCUSSION MATERIALS 56
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Phase II — Contact and Marketing
Phase I: Organization
Phase II: Contact and Marketing
Phase III: Business Diligence, Synergy Discussions and Initial Bids
Phase IV: Final Negotiations, Confirming Diligence and Signings
Timing: 2-4 weeks to make contact and determine interest
Cowen makes contacts
Only contact pre-screened and approved suitors May do so on a no-names basis, initially
Prepare partners for initial meetings
Execute confidentiality agreements Schedule management meetings Maintain dialogue
Identify legal documents and data room/due diligence binders
OVERVIEW ALTERNATIVES STRATEGIC V .
DISCUSSION MATERIALS 57
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Phase III — Business Diligence, Synergy Discussions and Initial Bids
Phase I: Organization
Phase II: Contact and Marketing
Phase III: Business Diligence, Synergy Discussions and Initial Bids
Phase IV: Final Negotiations, Confirming Diligence and Signings
Timing: 4-6 weeks, can be longer if large group of finalists
Select partners for additional dialogue and initial indications Initial management presentations Detailed business due diligence follow-up meetings
Key Legal and Accounting Operational Organizational Synergy discussions
Additional due diligence requests
Channeled through Cowen
Goal: Get potential investors/acquirors everything they need
Foster sense of competition
Gate timing to receive initial bids simultaneously
OVERVIEW ALTERNATIVES STRATEGIC V .
DISCUSSION MATERIALS 58
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Phase IV — Final Negotiations, Confirming Diligence and Signings
Phase I: Organization
Phase II: Contact and Marketing
Phase III: Business Diligence, Synergy Discussions and Initial Bids
Phase IV: Final Negotiations, Confirming Diligence and Signings
Timing: 3-4 weeks to signing, approximately 1-4 months to closing
Final confirmatory due diligence
Negotiation dynamics
Go face-to-face or exclusive at appropriate moment Leverage competing bids Measure price and terms vs. certainty of closure
Enter bidding agreement with board approval Announce transaction to employees and public File Hart-Scott-Rodino, if necessary Shareholders’ meetings and closing
OVERVIEW ALTERNATIVES STRATEGIC V .
DISCUSSION MATERIALS 59