Activist investors target BJ's Restaurants

Two activist investor groups stated on Thursday their intention to nominate new members for election to the board of BJ’s Restaurants Inc. in filings with the U.S. Securities and Exchange Commission.

In a joint filing, investor groups PW Partners Atlas Fund II and Luxor Capital Partners L.P., which together hold about 12.4 percent of the casual-dining chain’s outstanding shares, have proposed a slate of five new board members.

Separately, investor group Clinton Relational Opportunity Master Fund L.P., which holds about 0.48 percent of the company’s shares, said it also intends to nominate five new board members at the annual shareholder meeting.

In a response to those filings, BJ’s officials said in a statement released Thursday that its governance and nominating committee will review the nominations.

“BJ’s has always been committed to engagement with its shareholders, including regarding corporate governance matters,” the company said. “The board remains highly focused on creating the optimal conditions to generate long-term value and will continue to take actions that support the interests of all shareholders.”

The news gave a jolt to BJ’s stock price, which climbed nearly 20 percent, to $33.50, in afternoon trading.

Though the Huntington Beach, Calif.-based company’s annual shareholder meeting has not yet been scheduled, typically it takes place in June. This year all 10 of the current board members will be up for re-election.

According to a report Thursday by Christopher O’Cull, an analyst with KeyBanc Capital Markets Inc., BJ’s bylaws require at least seven board members and as many as 13, implying that the board could expand by three seats in an effort to prevent a proxy contest and placate the activist group.

The PW Partners Atlas Fund move is being led by Patrick Walsh, the group’s managing member and chief executive, who with board nominee Jeffrey Neal of Horizon Capital LLC represents PW Partners.

Walsh is developing a reputation for targeting troubled casual-dining chains. Last year, he successfully nominated himself for a board seat at Famous Dave’s of America Inc., which at the time was struggling to boost earnings and increase declining same-store sales.

Walsh has also held stakes in Denny’s Corp. and Red Robin Gourmet Burgers Inc., when he was a partner with Oak Street Capital Management LLC.

In 2010, Walsh, with Oak Street’s David Makula, led a proxy fight to replace top executives and board members at Denny’s, but the attempt failed. In 2011, the two were also involved in a battle for board seats at Red Robin, and Makula won a seat in a compromise.

Same-store sales at 147-unit BJ’s fell 2.7 percent during the most recent fourth quarter, and fell 1.1 percent for fiscal 2013, largely on declining traffic.

Hoping to reignite sales, the chain recently introduced a new menu with more affordable offerings. BJ’s also rolled out a new branding effort dubbed “One For All,” which the company said will attempt to more clearly communicate BJ’s story and highlight the concept’s core competencies of craft beer and pizza.

BJ’s is also investing more in advertising. The chain’s marketing spend is expected to be around $5.5 million for the first quarter this year, compared with about $3.4 million in the first quarter of 2013.

Last month, BJ’s president and chief executive Greg Trojan also announced plans to offer mobile payment and online ordering to speed service, allowing the casual-dining chain to better compete with fast-casual concepts.

Lynne Collier, an analyst with Sterne Agee, in a report released Thursday said BJ’s current value perception is a challenge. The chain has raised menu prices about 15 percent over the past five years, she said.

The pace of growth may also be an issue, Collier noted. BJ’s plans to open 15 restaurants in 2014, but officials left the possibility open that those plans could change if macroeconomic volatility continued.

“We believe that activist investors will pressure the company to slow/cease unit development and lower G&A, which we believe is the correct strategy,” Collier wrote. “However, the outcome from activist activity is uncertain.”

Contact Lisa Jennings at [email protected].
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