Lone Star Steakhouse & Saloon Inc. (NDAQ:STAR) recently passed the U.S. antitrust milestone, but may face another roadblock after new information surfaced today that may put its proposed buyout at risk. In a 13D filing with the SEC, the company disclosed that Deutsche Bank had upped its stake to 9.8%. Moreover, the bank noted in its filing that it "decide to vote against the transactions contemplated by the Merger Agreement and may seek appraisal of the fair value of its shares". This filing comes shortly after activist hedge fund Barington Capital noted (in its 13D filing) that "based on its analysis to date, it believes that the transaction consideration fails to provide adequate value to the Company’s stockholders". Barington also notes (in an attached press release) that their opinion is also shared by other experts:

"The transaction, which is subject to stockholder approval, would only provide stockholders with a 15% premium to the closing price of Lone Star's stock on August 17, 2006, the day before the deal was announced. Barington notes that Lone Star's stock has traded higher than the transaction price less than three months prior to the date the deal was announced. Barington also notes that CL King & Associates' analyst Michael Gallo has reported that the $27.10 share price looks low in their view and that Oppenheimer & Co. analyst Michael Smith currently rates Lone Star a buy with a 12-month price target of $32 a share. Based on Barington's evaluation of the transaction thus far, Barington does not believe that the consideration adequately reflects the value of the Company's extensive real estate holdings and upscale Sullivan's and Del Frisco's restaurant brands."

Combined, these two shareholders own 19.2% of the company's outstanding shares. With so much uncertainty surrounding the situation, the company may face a tough proxy vote in the fourth quarter of this year (to be announced before Oct. 15th). Meanwhile, the CEO of the company revealed in an August 28th filing that his stock and options would enable him to make roughly $80 million after the transaction. With 1,178,639 options at $12.41 per share, the CEO has a strong interest in making this transaction go through. If the merger fails, the CEO's risk-free options money will have to be exercised - costing him over $14 million while taking the additional risk of the company underperforming in the future. Whether or not the vote goes through remains to be seen, but with the stock currently trading above the buyout price, some investors are banking that new bidders will surface or the company will be saved by Barington and company. This stock is definitely worth keeping on the radar as this situation unfolds.

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