Kona Grill Recieves Take-Private Offer

(Reuters) – Kona Grill Inc (KONA.O) shareholder Mill Road Capital offered to buy the casual-dining restaurant chain for $27.9 million, or $4.60 per share, double the stock’s closing price on Friday.

In a letter to the restaurant chain’s board, Mill Road said its bid gave the company a better chance of “addressing competitive and capital issues as a private company.”

The proposal came a year after a similar $10.75 bid by Mill Road was rejected by the company. Kona Grill’s shares rose as much as 90 percent in Monday morning trade. They closed up nearly 71.6 percent, or $1.64, at $3.93.

“Even with the current rights offering, the company does not have the capital required to resume growth at the end of 2009,” Mill Road, which currently has a 9.8 percent stake in the company, said.

On March 30, Kona Grill filed with the U.S. Securities and Exchange Commission for a rights offering for up to $3.3 million.

The absence of a permanent chief executive is worsening things for the grill and sushi bar operator, Thomas Lynch, senior managing director of Mill Road, said in the letter.

Former Kona Grill CEO Marcus Jundt resigned last Friday after a majority of shareholders did not support his re-election.

Kona Grill will consider the proposal with outside advisors and legal counsel, the company said in a statement later on Monday. It will respond “in due course, within the context of the overall company’s strategic and financial plans,” according to the statement.

Mill Road, Kona Grill’s second biggest shareholder after William Blair & Co, had earlier accused the company of secretly restructuring notes and favoring insiders.

The Greenwich, Connecticut-based investment firm further said it does not need outside financing to complete the deal.

The offer states that if Kona’s rights offering is fully subscribed, Mill Road will increase the consideration that it pays to shareholders by $3.5 million — the amount raised in the rights offering, Lynch said in the letter.

“But given the large increase in the number of shares outstanding, this will result in a lower price paid per share,” he added.

(Reporting by Nivedita Bhattacharjee in Bangalore; Editing by Himani Sarkar, Anthony Kurian and Carol Bishopric)