Japanese-themed restaurant chain Benihana Inc plans to go private in a $296 million deal with investment adviser Angelo Gordon & Co, after struggling to convert strong sales growth into meaningful profits.

Benihana's net margins have shrunk from about 3 percent at the end of 2010 to 1.4 percent in the last reported quarter, well below the sector average of 5.4 percent, according to Thomson Reuters data.

"Probably after two years of good sales results and really not being able to leverage it to a great degree, the company decided it was a better alternative to take it private," analyst Michael Gallo of C.L. King & Associates told Reuters by phone.

The deal to acquire Benihana is the second private equity buyout in the restaurant sector this month. Bigger peer P.F. Chang's China Bistro Inc struck a $1.1 billion deal to sell itself to private equity Centerbridge Partners.

Miami-based Benihana, which previously considered a sale in July 2010, will be free to consider alternate proposals through July 1.

Gallo reckons there won't be another suitor for the company. He said buyers will be interested more in single concept chains, rather than multiple format restaurant operators like Benihana.

Benihana, "red flower" in Japanese, is known for its namesake restaurants that offer teppanyaki-style cuisine where chefs prepare food on a grill that is part of the table.

It also operates RA Sushi restaurants that offer sushi and Pacific-Rim dishes and the Haru chain that serves up both traditional Japanese and fusion dishes.

STRONG PREMIUM

Angelo Gordon, which currently manages about $24 billion in assets according to its website, will pay $16.30 per Benihana share — a 23 percent premium to the stock's close on Monday.

The price is also nearly 40 percent higher than the stock's trading levels immediately prior to when the company said it would look at alternatives in mid March.

Angelo Gordon is known for investing in distressed companies. It held debt in aircraft maker Hawker Beechcraft Inc, which filed for bankruptcy protection earlier this month, and in the Tribune newspaper group, which has been under bankruptcy protection since 2008.

Jefferies & Co is serving as financial adviser and Hughes Hubbard & Reed LLP is the legal advisor to Benihana. Angelo Gordon is being advised by Kirkland & Ellis LLP.

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