Major Stakeholder Opposed to Lone Star Steakhouse Merger

Nov. 02, 2006 1:42 PM ETStarent Networks Corp. (STAR-OLD)
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Lon Juricic
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In an amended 13D filing on Lone Star Steakhouse & Saloon Inc. (STAR-OLD), large shareholder Barington Capital disclosed a letter sent to the company stating it continues to believe the merger with with Lone Star Funds fails to adequately reflect the value of the company, including its extensive real estate assets and upscale Sullivan's and Del Frisco's restaurant brands, and that they intend to vote against the merger and may seek appraisal rights in connection with the transaction.

In the letter Barington said, "We question the judgment of the Board in approving the transaction without having first obtained an appraisal of the real estate holdings of the Company. We estimate that the value of the Company's extensive real estate assets (including land and buildings) exceeds $400 million and believe that it is misleading for the Company to disclose on page 28 of the Proxy Statement that the actual market value of the Company's owned real estate holdings could be "higher or lower" than such assets' net book value of approximately $245 million. We also note that neither of the two financial advisors that opined as to the fairness of the proposed transaction made an independent appraisal or valuation of the Company's real estate holdings or were furnished with an appraisal of such assets (as disclosed on pages 30 and 36 of the Proxy Statement), causing us to question the ultimate utility of the fairness opinions that have been rendered."

On August 18th, Lone Star signed a definitive agreement to be acquired by affiliates of Lone Star Funds, a Dallas-based private equity firm, for $27.10 per share in cash.

A Copy of the Letter:

Gentlemen:

We have reviewed in detail the definitive proxy statement of Lone Star Steakhouse & Saloon, Inc. (the "Company") that was filed with the Securities and Exchange Commission on October 23, 2006 (the "Proxy Statement") with respect

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Lon Juricic is the President and founder of StreetInsider.com, a popular news analysis service on the web since 1999. Lon uses his trading knowledge and journalistic skills to present trading ideas to investors ranging from the novice to institutional level. He has been quoted in many top financial publications including Dow Jones, Bloomberg and Smart Money, among others. In his daily routine monitoring the "heart-beat" of the market, Lon tracks the movements of activist investors through their 13D filings with the SEC and notes them at 13DTracker (http://13dtracker.blogspot.com/).

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