An activist investor has taken an interest in Noble Roman’s Inc., saying that the quiet, 2,000-unit pizza concept is not fulfilling its potential, and that it would be better off being sold.
Privet Fund, Noble Roman’s largest outside shareholder, with more than 14 percent of the company’s stock, recently intensified its push for changes with a pair of letters addressed to the board. Both the letters urged the Indianapolis company to explore a possible sale.
“Our patience with company leadership has run out,” Privet’s Ryan Levenson and Ben Rosenzweig wrote in a letter last month. “We believe the value of the company’s assets to be significantly higher than the current market value, a divergence we believe to be directly correlated to … operational and governance shortcomings.”
They added that there would be “significant third party interest in acquiring the company.”
Noble Roman’s or its executives have not responded to Privet’s letters or its requests, and a spokesman for the company said it would not publicly respond. Scott Mobley, the company’s CEO, did not respond to a request for comment. But he called Privet’s letter “clearly inflammatory” in an interview with the Indianapolis Business Journal last month, and said that the company is not exploring a sale.
Noble Roman’s is a small-cap stock that has been publicly traded for years. The chain started off in the early 1970s as a traditional pizza concept, but has since taken up shop inside convenience stores and other nontraditional locations.
More recently, in 2012, it developed a take-and-bake concept that can go in standalone locations or inside grocery stores. Overall, the company has more than 2,000 franchised or licensed locations, according to its most recent annual report.
Noble Roman’s generated $1.97 million in revenues in its most recent quarter ended Sept. 30, a 6-percent decrease from the same period a year ago. Net income also fell, from just under $500,000 to $261,329.
The company has a tiny market cap of less than $22 million and is traded over the counter rather than on one of the big exchanges. That means its stock is vulnerable to wild swings. It also makes it difficult to compare the stock’s movement to other publicly traded companies.
Still, its stock price has fallen by nearly 50 percent over the past year. It currently trades at just over $1 per share.
Noble Roman’s is led by 74-year-old Paul Mobley. Mobley has been on the board since 1974. He became the company’s president in 1981, and today serves as executive chairman and chief financial officer.
A year ago, Mobley ceded the CEO job to his son, Scott Mobley, who has been involved with Noble Roman’s since the late 1980s.
Privet Fund argues that Noble Roman’s is not fulfilling its brand’s potential, both in terms of revenue and unit count.
The activist argues that Paul Mobley promised in March 2014 that the company would have 70 standalone locations open by the end of 2015, but as of November there were just 17 locations open, five fewer than in November 2014. “Not only has management come up short in growing the franchisee base, but they have actually regressed,” they wrote.
In its first letter, sent last month, Privet argued that the company is badly missing revenue growth projections, noting that the company predicted 21-percent revenue growth this year, but will not even reach 10 percent. Levenson and Rosenzweig wrote that growth “is unacceptable given the size of the company’s addressable markets compared to its modest revenue base.”
They also said that the company’s attempt to build a standalone take-and-bake restaurant concept has languished because management was “learning on the go.”
Privet Fund has been pushing Noble Roman’s to increase the size of its board for some time. The board had five members until this month, when one of the independent directors resigned. The Mobleys, both of whom work for the chain, represent half the remaining board. One of the other board members, Schuster Tanger, was only added after he agreed to vote his shares in accordance with board wishes for three years.
“We cannot imagine any circumstance where this is acceptable corporate governance,” Levenson and Rosenzweig wrote in a letter last week.
They argue that the company has a strong base from which to build, however, because it has more than 2,000 total locations and significant potential to distribute products inside grocery stores. “With only incremental positive developments and basic operational execution, we are confident EBITDA [earnings before interest, taxes, depreciation and amortization] could grow at multiples of the current rate over the next several years,” Levenson and Rosenzweig wrote.
They added that shareholders could receive a “premium valuation” if the chain were put up for sale.
“In well-governed companies, a continually languishing stock that is significantly disconnected from the current and potential value of its assets requires an urgent and genuine assessment of whether the company can realistically create enough value to warrant remaining independent,” Levenson and Rosenzweig wrote. “After more than 30 years of value destruction at Noble Roman’s, we fail to see how the case for remaining independent can be made absent a drastic move to restore credibility to the board and management.”
Contact Jonathan Maze at [email protected]
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