Luby’s fends off board challenge from activist investor
Luby’s shareholders rejected an activist investor’s attempt to wrest control of the restaurant company from the Pappas brothers on Friday, ending a 43-day proxy fight over the Houston chain.
Shareholders elected all the company’s candidates for its nine-member board at its annual meeting, rejecting four nominees pushed by New York hedge fund Bandera Partners, according to preliminary results issued by the company.
Luby’s did not release the actual voting count, but said it was a close contest. Bandera said the election had a voter turnout of more than 85 percent.
Chief Executive Chris Pappas said in a statement that the company will look to improve its operating results.
“With this annual election now completed, our full focus returns to executing our turnaround plan for the business and ensuring that we have our right board composition to oversee our strategy,” he said.
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Jeff Gramm, a Bandera co-founder, said he accepted the preliminary results, which were reviewed by Luby’s proxy solicitor and will later be certified by an independent inspector of elections and filed with the Securities and Exchange Commission.
“Although it is early and we have not seen official results, we believe we won the vast majority of votes from non-affiliated shareholders,” he said. “It is clear to me that Luby’s shareholders are very frustrated with the company and desperate for change in the boardroom.”
Friday’s election caps a bitter boardroom dispute between two prominent Texas families fighting for control of the iconic but struggling Houston restaurant chain known for its comfort foods, such as the LuAnn Platter. The company operates 82 Luby’s Cafeterias and 59 Fuddruckers restaurants. It franchises another 104 Fuddruckers locations nationally.
Gramm, the son of former U.S. Sen. Phil Gramm of Texas, was seeking to oust Chris Pappas and his brother Harris Pappas from Luby’s board, which they have helmed for nearly two decades. The brothers also own and operate popular Houston restaurants Pappasito’s Cantina, Pappadeaux Seafood Kitchen and Pappas Bar-B-Q.
Bandera, which has been a Luby’s shareholder for more than a decade, was lobbying fellow investors to replace the Pappas brothers, Chairman Gasper Mir III and board member Frank Markantonis with its own slate of candidates, which included Gramm and his father.
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Bandera faced an uphill battle to pry control of Luby’s from the Pappas brothers, who control 36.8 percent of the company’s stock. Bandera has a 9.8 percent stake.
Gramm, who flew in from New York to attend the annual meeting, said he did not regret the proxy fight, which tested his close friendship with fellow activist investor and business associate James Pappas, Chris Pappas’ son. In a prepared statement to Luby’s board, Gramm encouraged it to listen to shareholders and wished it success in the coming year.
“I don’t regret my decision to take this vote to Luby’s shareholders,” Gramm said in an interview. “I really do believe that if I hadn’t done this, the company wouldn’t have committed to bringing some change to the boardroom in the coming year.”
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Luby’s last week announced plans to make some changes to its board in a bid to appease Bandera and other shareholders concerned with the company’s stock performance.
Among the moves, Mir announced he would relinquish his leadership position to another independent board member later this year. The board said it is also looking to replace two incumbent members, several of whom are approaching retirement age, with independent directors. Luby’s did not say who would step down but said the changes will take place later this year.
David Littwitz, the owner of Houston restaurant brokerage Littwitz Investments, said little has changed as a result of the proxy fight, however. Luby’s restaurants are unprofitable, the company’s stock is down and the company is still forced to sell off real estate to pay down its debt, he said.
“It’s still a tough situation for the current management to operate,” Littwitz said. “All this has done is give Chris Pappas some breathing room for the moment, but not by much.”
Ed Wulfe, the chairman of Houston retail brokerage Wulfe & Co. and a Luby’s shareholder, said he voted in favor of Luby’s slate of candidates.
“I’m very pleased Luby’s is staying in the hands of the Pappas, who are proven restaurateurs with years and years of experience,” Wulfe said. “I think in the long term, this is in the best interest of Luby’s and shareholders.”
After rising briefly midday, shares of Luby’s fell 13.8 percent Friday to $1.56. The company is set to report fiscal 2019 first quarter earnings Monday.