Buyout doubts hit California Pizza Kitchen shares

When California Pizza Kitchen Inc.?s founders hung out the ?for sale? sign in early April, the L.A.-based restaurant chain?s shares quickly surged to a three-year high.

But less than three months later, more investors seem to be giving up on the idea that a deal will happen.

CPK stock slumped $1.03, or 7.2%, to a six-month low of $13.19 on Tuesday. The shares, which have fallen in 10 of the last 11 sessions, now have plummeted 38% since reaching a peak of $21.30 in April on buyout hopes.

Tuesday?s selling may have been fueled in part by a vague New York Post report late last week that lumped CPK in with several other firms facing ?foundering auctions that appear close to collapsing.? The story didn?t get more specific.

A CPK spokeswoman declined to comment on the Post report.

Company founders Rick Rosenfield and Larry Flax, who launched the designer-pizza chain 25 years ago, said in April that the firm was looking at ?wide range of financial and strategic alternatives to enhance shareholder value,? including a possible sale of the business.

CPK, with 258 restaurants worldwide and a supermarket line of frozen pizzas, went public in 2000 but has never been a great profit machine for shareholders. Bottom-line earnings peaked in 2006.

Still, the appeal of the company to private-equity buyers is that the business is a strong cash-flow generator, said Bryan Elliott, an analyst at brokerage Raymond James & Associates in St. Petersburg, Fla.

In other words, the private-equity shops might see the potential for juicing the bottom line in ways that Rosenfield and Flax couldn?t or wouldn?t. That is, after all, what P-E buyers think they do best.

Elliott still thinks that the company, which has almost no long-term debt, could be worth between $23 and $27 a share in a takeover, based on cash flow. But he noted that investors? deepening fears of a slowing economy could mean that any buyout prices under discussion have been ratcheted lower in recent weeks.

What?s more, CPK?s room to negotiate most likely shrank on June 21, after the company warned that second-quarter sales and earnings would fall significantly short of estimates.

Nearly all restaurant stocks have been crumbling since mid-June on economic worries, but CPK?s decline since June 18 is double the 15% drop in the Standard & Poor?s index of 19 small-capitalization restaurant stocks, which includes rivals such as P.F. Chang's China Bistro Inc., Texas Roadhouse Inc. and BJ's Restaurants Inc.

Bargain-hunting investors now have to decide whether the bludgeoning of CPK's stock is an opportunity -- or a warning.

-- Tom Petruno