Vintage Capital Management said it is disappointed by Red Robin Gourmet Burgers Inc.’s rejection of its takeover bid and called into question the “staggering” compensation package offered to newly appointed CEO Paul Murphy, the firm wrote late Tuesday in a regulatory filing.
Last week, Red Robin’s board tapped Murphy, left, an industry veteran and turnaround specialist, as the distressed company’s new chief executive. On the same day, the Greenwood Village, Colo.-based casual-dining brand rejected the activist investor’s offer to buy Red Robin at $40 a share after engaging in “constructive dialogue with Vintage.”
In the Sept. 10 letter, signed by Vintage manager Brian Kahn, the firm accused Red Robin of “grossly” misrepresenting the facts about its bid to shareholders including failure to mention that Vintage was prepared to increase the offer.
“Despite our repeated requests, there has been no substantive dialogue, let alone one that could be described as ‘constructive,’” according to the letter. “With our offer in hand representing an approximately 57% premium, the company inexplicably did not request any conversation with us until August 27, 2019, days before it summarily rejected our offer and hired Mr. Murphy.”
Vintage said it advised Red Robin’s leadership on several occasions, including Aug. 27, that it was “optimistic” that it would increase its offer.
Red Robin responded to Vintage's letter early Wednesday, restating that the board “carefully reviewed and considered Vintage’s proposal, consistent with its fiduciary duties and in consultation with its legal and financial advisors.”
“The Board unanimously determined that the proposal undervalues Red Robin and is not in the best interests of all shareholders,” the company stated in a regulatory filing.
Vintage, which began putting pressure on Red Robin’s leadership in June, also took issue with Murphy’s total compensation, especially the executive’s “staggering severance package.”
“If Mr. Murphy is terminated in connection with a sale of the company or a change of a majority of the board, he is entitled to cash and vested equity with a value today of more than $9 million,” the firm wrote.
According to a regulatory filing, Murphy’s total compensation includes an annual base salary of $900,000, eligibility to receive an annual bonus equal to 120% of his base salary and $1 million in miscellaneous perks, including a $500,000 sign-on cash bonus. He will also receive restricted stock valued at $1.6 million. In fiscal 2020, he will receive an award under the company’s long-term incentive plan valued at $3 million.
In its Sept. 11 letter, Red Robin did not address Murphy's salary. Instead, the company said it was confident in the former Del Taco CEO's history of creating shareholder value for companies. Murphy recently served as chairman of Noodles & Company during a critical turnaround phase for the Colorado-based fast-casual chain.
Murphy is “a proven restaurant industry executive with more than 30 years of operational, brand-positioning and turnaround expertise, as well as an extensive track record of creating significant shareholder value. We are excited about the Company’s potential to improve customer experience, significantly improve cash flow and increase profitability.”
Vintage said it plans to investigate the actions of the board.
“The board will be called to answer for its campaign of delay, obfuscation, and fiduciary duty breach,” Vintage wrote.
Red Robin said it appreciates input from all shareholders who share the company's goal to enhance and look for "all potential opportunities to create shareholder value."
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