Luby’s to fight activist investor seeking control of struggling chain
Luby’s on Friday said its board of directors will vote their shares in support of the company’s current leadership and strategy, setting up a proxy fight with an activist investor seeking to wrest control of the struggling restaurant chain.
The Houston company said it is reviewing a letter submitted earlier this week by Bandera Partners, a New York hedge fund and longtime Luby’s investor concerned with the company’s direction amid growing competition from fast-casual restaurants. The hedge fund nominated five candidates to “improve the board with fresh, independent faces,” according to its letter.
Members of Luby’s nine-member board of directors are elected to a one-year term every year at the company’s annual shareholders meeting, which is expected to take place in January or February.
Luby’s in its statement Friday said it was surprised by Bandera’s nominations, which came a few days after the hedge fund approached the restaurant chain’s board demanding that it replace a third of its members and appoint Bandera’s co-founder Jeff Gramm; his father and former Texas Sen. Phil Gramm; and one of Bandera’s close business associates to the board.
The restaurant chain said Bandera didn’t give its board enough time to review and discuss the hedge fund’s proposed candidates.
“Bandera gave the board only 48 hours to agree to their demands,” Luby’s said.
Luby’s has hired Sidley Austin, a Chicago-based law firm as it prepares for a proxy fight with Bandera. The hedge fund earlier this week nominated five board candidates: Jeff Gramm; Phil Gramm; Stacy Hock, chairwoman of Texans for Education Opportunity; Savneet Singh, a partner at New York asset management firm CoVenture; and Brian Wright, the CEO of Massachusetts-based Bertucci’s Italian Restaurants.
Bandera declined to comment pending a formal proxy statement. In its public letter on Tuesday, Bandera said it had reached out to Luby’s CEO Christopher Pappas and several directors about getting its candidates on the board and only received a response from one director.
“To date, almost four weeks after I responsibly engaged with the company, Luby’s has evaded substantive discussion,” Jeff Gramm wrote in the letter.
Luby’s, founded in San Antonio in 1947, is known for its cafeteria-style restaurants serving comfort foods, such as the LuAnn Platter. Luby’s has struggled in recent years to draw diners to its cafeteria concept. The company reported a loss of $33.6 million this fiscal year, which ended in August, and its stock has lost two-thirds of its value since January.
Luby’s stock ended the trading day Friday at $1.52 a share, down from its peak of around $25 in 1993. The company has a stock market value of around $45 million.
Since 2001, the chain has been led by Christopher Pappas and and his brother, Harris, founders of Houston-based Pappas Restaurants. The company moved to Houston in 2004.
The Pappas brothers control more than 35 percent of the Luby’s stock. Luby’s in a statement Friday said each of its board members has committed to vote their shares in accordance with the board’s formal recommendations on candidates, which is expected in the coming weeks.
“Christopher Pappas and Harris Pappas and the entire Board continue to support the Company’s strategy and plans as have been previously disclosed,” Luby’s said.
Bandera, which has invested in restaurant chains such as Famous Dave’s BBQ, has owned Luby’s stock for more than a decade and currently owns 8.9 percent of Luby’s outstanding shares. Its impending proxy fight with Luby’s would be the first the hedge fund has led.
Jeff Gramm is the author of “Dear Chairman,” a book on activist investors. He sits on the board of Indiana-based Morgan’s Foods with James Pappas, an activist investor and son of Luby’s CEO Chris Pappas.
Last year, Bandera joined Jeff Pappas’s Houston-based fund, JCP Investment Management, in a proxy fight against Fiesta Restaurant Group, a Dallas-based company that owns Pollo Tropical and Taco Cabana. That proxy fight was ultimately unsuccessful.