Red Robin Gourmet Burgers Inc. said activist investor David Makula of Oak Street Capital Management LLC has joined the company’s board and agreed not to block its strategic efforts going forward.
The move Tuesday by Red Robin, which increases the number of board members to 11, appears to be a compromise with Makula, who as managing director and chief investment officer of Oak Street has been openly critical of attempts by Red Robin’s management to turn around the Greenwood Village, Colo.-based chain over the past year.
Oak Street and its affiliates are among Red Robin’s largest shareholders, owning about 13.8 percent of the company’s common stock.
“I’m very pleased to welcome David to the Red Robin board of directors and I look forward to his future contributions to Red Robin,” Pattye Moore, Red Robin’s chairwoman, said in a statement. “With David’s appointment, we have now added five new independent directors in the last year, as well as our new CEO Steve Carley, substantially enhancing the quality of our corporate governance.”
With the agreement, Oak Street also withdrew its separate nomination of Makula and partner Patrick Walsh to the Red Robin board. In addition, Makula has agreed to support the company’s board nominees — including Carley and Moore — at the company’s annual shareholder meeting May 26.
According to filings with the U.S. Securities and Exchange Commission, Makula or an Oak Street-approved replacement will serve on the Red Robin’s board until the company’s 2012 annual stockholder meeting, when he would be up for re-election.
In addition, Makula will serve on the board’s audit committee, and on any special committees that may be created later for considering strategic alternatives, such as a sale, merger or key change in financing.
During the “support period” through Red Robin’s 2012 annual meeting, Oak Street has agreed it would not propose changes to the board membership or take any public action to influence the board, management or company policy. The group also agreed it would not make derogatory or disparaging remarks about the company or any publicly announced plans involving a recapitalization, acquisition or other changes in control of Red Robin, according to the filing.
Oak Street also pledged it would not acquire more than 16.5 percent of outstanding shares during the support period. Earlier this year, the firm had pushed for the removal of a “poison pill” provision established to prevent hostile takeovers.
Red Robin later agreed to raise from 15 percent to 16.5 percent the threshold of stock acquired to trigger the plan’s protections.
In a letter to Red Robin management in January, Oak Street described the company’s Project RED turnaround plan as “general statements that read like a ‘cookie cutter’ list that could be applied to almost any restaurant concept.” Project RED includes traffic-driving and cost-cutting initiatives, such as enhancing the brand’s loyalty program, building its bar business, cutting staff at company headquarters, and raising menu prices to offset rising commodity costs.
In the statement Tuesday, Moore said Red Robin is “making great strides strategically and operationally as we continue to focus intensely on our strategic plan, Project RED. The board will continue to work very closely with management to maximize the benefits associated with our plan to drive long-term shareholder value.”
Red Robin reported U.S. systemwide sales of $1.14 billion in fiscal 2010, up 2.2 percent over the prior year. Same-store sales for company units fell 0.6 percent in 2010, an improvement over the 11.1-percent drop in 2009.
The company’s net income has fallen steadily over the past four years, from $30.7 million in fiscal 2007 to $7.3 million in 2010.
At the end of its Dec. 26-ended fourth quarter, Red Robin operated 314 locations and another 136 were franchised.
Contact Lisa Jennings at [email protected].