HOUSTON Luby’s Inc. urged its shareholders on Thursday to reject all four board of director nominees from its largest independent shareholder, the 7.1-percent holder Ramius Capital Group LLC. The cafeteria chain asked that shareholders re-elect the company’s current directors.
Avote on the re-election of four directors of the 10-member corporate board is expected to occur at Luby’s shareholder meeting scheduled for Jan. 15 in Houston. Luby’s chief executive Chris Pappas and chief operating officer Harris Pappas also serve on Luby’s board of directors, but their positions and two others are not up for re-election.
Ramius and Luby’s have been battling over the future of the restaurant company since this summer, with Ramius calling for a possible sale of the 128-unit cafeteria chain or sale-leaseback transactions on its real estate. Luby’s has defended its current strategic direction, which includes the closing of underperforming locations, targeted new unit growth and the elimination of corporate debt. It also has defended the work of the Pappas brothers, despite their dual roles at Luby’s and their own private restaurant company, Pappas Restaurants. Ramius has called into question the Pappas brothers’ running of two restaurant companies.
Luby’s current chairman, Gasper Mir, deemed its largest independent shareholder “a notorious dissident shareholder activist.”
If Ramius’ nominees were elected to Luby’s board, that would “enable Ramius to pursue its short-term, self-serving agenda to strip the company of its assets and undermine Luby’s ability to continue executing its strategic growth plan,” Mir said in a statement.
“Despite the challenging restaurant industry, Luby’s has returned to profitability É is now debt-free, and is outperforming its competitors,” Mir continued in the statement. “Luby’s today has the financial strength to execute on its strategic growth plan of opening 45 to 50 innovative new cafeteria restaurants over the next five years, investing in its existing restaurants, and expanding the Luby’s brand to health care facilities.”
In October, Ramius officially nominated to Luby’s board four candidates, including three restaurant veterans from Wendy’s, Baja Fresh and Fuddruckers. Ramius has repeatedly said that it believes in the Luby’s brand, but that the company’s board lacks independence, restaurant experience and the insight to move the company forward.
In a six-page letter sent to all Luby’s shareholders and filed with securities regulators on Thursday, Ramius outlined initiatives it said it would take to increase shareholder value should its directors be nominated to the board. Those moves include the development of new marketing and branding techniques to differentiate the “stale” Luby’s concept, the improvement of same-store sales and unit economics, and the sale of owned real estate assets in sale-leaseback transactions.
Ramius’ slate of candidates includes Stephen Farrar, a former senior vice president at Wendy’s International Inc.; William Fox, a former director at Nephros Inc., a medical device company; Brian Grube, former chief executive and president of Baja Fresh Mexican Grill; and Matthew Pannek, former president and chief executive of Magic Brands LLC and Fuddruckers Inc.
“We believe that the Pappases have made the straightforward changes necessary to extract higher profits at Luby’s, such as restaurant closures, cost initiatives, and price increases,” Ramius said in its letter. “However, a much more challenging growth phase of the business is still to come [and] the board will need to provide greater industry knowledge and insight to assist management in the next, more difficult phase of growing the business.”
Luby’s said it had “thoroughly” evaluated sale-leaseback options, but that it would cost the operator more to rent the properties than it would generate in income each year.
“Ramius conveniently omits the fact that the experience of its director nominees includes failed strategies and poor execution at a number of restaurant concepts,” the company said. “In sharp contrast, Luby’s directors have extensive experience in the casual-dining sector with success at each step of the way.”