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Family dining chain, CEC Entertainment, Inc. recently entered into an agreement as per which an affiliate of Apollo Global Management (APO), a leading global alternative investment manager, will take over the company for $1.3 billion, including debt. The cash tender offer of $54.00 per share represents a 25.0% premium over the company’s closing share price as of Jan 7, 2014.

Per media reports, CEC Entertainment that runs the Chuck E. Cheese chain was looking for a buyer. This company offering food and games has been struggling of late due to the challenging environment.  In fact, third quarter revenue (reported in November) declined 0.4% year over year due to a 3.6% drop in food and beverage sales. Comps declined 2.1% hurt by an 11% decrease in birthday party sales.

Due to the weak results, the board of directors of CEC Entertainment was looking for a suitable offer and approved the deal after reviewing a number of strategic alternatives. It also adopted a shareholder rights plan as per which it declared a dividend of one preferred stock purchase right on each outstanding share of common stock as of Jan 26, 2014.

The merger will enable CEC Entertainment to expand domestically as well as internationally and provide a substantial premium to its shareholders.

CEC Entertainment presently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include Fiesta Restaurant Group, Inc. (FRGI - Snapshot Report), Jack in the Box Inc. (JACK - Snapshot Report) and Buffalo Wild Wings Inc. (BWLD - Analyst Report). While Fiesta Restaurant and Jack in the Box carry a Zacks Rank #1 (Strong Buy), Buffalo Wild Wings holds a Zacks Rank #2 (Buy).

 

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