The deal would create the largest buffet-restaurant chain in the United States.
Buffets, based in Eagan, Minn., will pay $16.25 in cash for each share of Greer, S.C.-based Ryan's Restaurant stock, a 49.3 percent premium to Monday's closing price of $11.22.
Ryan's Restaurant shares leaped $4.48 — about 40 percent — to close at $15.70 a share Tuesday on the Nasdaq Stock Market. Volume was heavy.
The day's strongest level of $15.87 was a 52-week high surpassing the prior high of $14.68 set March 31. There was a 52-week low of $10.04 on Oct. 27.
The deal marks the most significant growth initiative that the company has embarked on since Caxton-Iseman, a New York private-equity firm, bought it in 2000 for $634 million, said Steven Lefkowitz, a managing director at the firm.
As a result, Buffets has temporarily shelved plans for a sale or recapitalization, strategic alternatives the company had been looking at since January.
The deal combines Buffets Inc.'s 337 restaurants and Ryan's 340 locations to form a company with annual revenue of more than $1.7 billion and about 43,000 employees. R. Michael Andrews, Buffets' chief executive, will continue to lead the combined company, which will be called Buffets Inc., with Ryan's operating as a separate division.
The deal will play off the respective geographic strengths of each company, Lefkowitz said. While Buffets does well in California, the Midwest and the Northeast, Ryan's dominates the buffet restaurant scene in Texas and the Southeast United States. In fact, the two companies operate only about 30 locations in the same markets and few closures, if any, are expected.
A "significant portion" of the deal will be financed through sale-leaseback deals arranged by Fortress Investment Group LLC, Lefkowitz said. The remainder will be funded through a combination of bank debt and senior subordinated debt from Credit Suisse Securities LLC and UBS Securities LLC. Both companies also will refinance their existing debt.
Buffets tapped Berenson & Co. as financial adviser and Paul Weiss Rifkind Wharton & Garrison LLP as legal counsel. Ryan's financial adviser is Brookwood Associates LLC, while its legal adviser is Wyche Burgess Freeman & Parham P.A.
The deal, which has been approved by the boards of directors of both companies, is expected to close in the fourth quarter, following customary closing conditions and the receipt of approval from Ryan's shareholders.