Rainforest Cafe chain sold for $108 million to casino operator

Thursday, Dec. 23, 1999 | 10:56 a.m.

SUN STAFF AND WIRE REPORTS

Lakes Gaming Inc. of Minneapolis said Wednesday its will acquire Rainforest Cafe Inc. in an all-stock deal valued at $108 million. Lakes will swap 0.55 shares of its common for each share of Rainforest.

Lakes Gaming stock was off 31.25 cents a share, to $7.9375, in midday trading today, while Rainforest stock was up 18.75 cents to $3.9375.

Based on Wednesday's closing prices for both stocks, Lakes valued Rainforest shares at $4.54 each, a 21 percent premium. There will be 24 million Lakes shares outstanding after the merger.

The transaction, subject to shareholder approvals, is expected to be completed by the end of April 2000, Lakes said.

Lakes Gaming is a spinoff of the old Grand Casinos that merged into Park Place Entertainment of Las Vegas last January. Lakes manages two tribal casinos in Louisiana and controls about 15 acres on the Strip in Las Vegas near the Polo Towers. It's also developing two Indian gaming projects in California and one in Michigan.

Rainforest operates 37 jungle-theme restaurants around the country, including one at the MGM Grand hotel-casino in Las Vegas.

Lyle Berman, chairman and chief executive of both companies, will retain his positions in the merged entity. He said the acquisition "represents the continuation of our stated strategy of diversification and growth."

"The increased cash flow from the combined operations will provide the company with greater resources to pursue future growth opportunities," Berman said.

Berman provided some of the start-up money for Rainforest Cafe and now owns 7 percent of Rainforest and 11 percent of Lakes.

Shares of Hopkins, Minn.-based Rainforest Cafe have declined 75 percent since early 1998. Like other themed restaurant chains including Planet Hollywood, Rainforest has had trouble with declining sales.

"The strategic business combination could provide some important revenue and earnings diversification necessary to gain the market recognition that neither Rainforest Cafe nor Lakes has recently been able to command individually," Rainforest President Kenneth Brimmer said in a statement.

Rainforest will become a unit of Lakes Gaming but will be operated separately.

Chief Financial Officer Timothy Cope on Wednesday said the deal gives Lakes access to cash flow while adding some "sizzle" to Rainforest.

"We're undervalued, they're undervalued," Cope said. "We get access to the cash flow produced by Rainforest. We'd like to use it to further develop Lakes' other business opportunities. From Rainforest's perspective, they get the advantage of combining with a company that has a little more appeal to the public shareholder."

As far as looking for opportunities, Cope said, "We have no specific business in mind, but we're looking for something in the hospitality-entertainment type industry."