HOUSTON and DENVER—In a press release issued Tuesday, Rick's Cabaret International Inc., VCG Holdings Corp. and Troy Lowrie and his affiliates announced that they have signed a letter of intent under which Rick's Cabaret will acquire all of the outstanding shares of VCG Holdings to form the largest publicly traded operator of upscale gentlemen's clubs in North America.
Rick's Cabaret currently operates 18 nightclubs in seven states while VCG Holdings operates 20 clubs in 10 states. The two companies had combined revenues of $131.3 million for the 12-month period ending September 30, 2009.
Under the non-binding (except as to certain provisions, including exclusivity and confidentiality) letter of intent, the companies anticipate a potential merger (structured to qualify as a tax-free reorganization), in which VCG Holdings' shareholders will receive shares of Rick's common stock based on certain exchange ratios valuing each share of VCG Holding's common stock between $2.20 and $3.80 per share.
Contemporaneously with the merger, Rick's will acquire 5,770,197 shares of VCG Holding common stock held by Troy Lowrie and his affiliates, for cash in an amount equal to the lesser of $2.44 per share or the per share price of common stock received by VCG Holding's shareholders in the proposed merger.
The letter of intent also provides for an exclusivity period through March 12, during which time VCG Holding and its representatives agree to negotiate exclusively with Rick's, subject to termination and a termination fee payable to Rick's upon VCG Holdings' receipt of a "superior proposal" to acquire 20 percent or more of VCG Holdings.
"The combination of these two companies will result in a powerful operator that we believe would have generated earnings before income tax and depreciation (EBITDA) for the 12 months ended September 30, 2009 of approximately $25.3 million without any of the add-backs we anticipate we will achieve through synergistic cost savings,” said Eric Langan, president and CEO of Rick's Cabaret International. “I am confident that the combined entities can achieve meaningful savings through streamlined management and elimination of duplicate costs associated with being two separate public companies, including lower legal and accounting expenses."
"We at VCG are very pleased that this merger will create the leading adult entertainment nightclub operator in the United States,” added Troy Lowrie, chairman and CEO of VCG Holdings Corp. “There are significant similarities in the companies' cultures and capabilities, and this should ultimately be a great combination for our shareholders, customers, and employees. We believe that the combined company will be better positioned to generate strong financial results and capitalize on future growth opportunities."
