Proxy fight for Luby’s begins
Hedge fund seeks to put four on 9-member board of troubled chain, shake up Pappas brothers’ operation
An activist investor launches the proxy fight it promised against Luby’s board of directors, which if successful would remove the Pappas brothers from the helm of the struggling Houston restaurant chain.
An activist investor has launched the proxy fight it promised against Luby’s board of directors, which if successful would change the leadership of the struggling Houston restaurant chain helmed for nearly two decades by Houston’s Pappas brothers.
Longtime restaurant investor Bandera Partners is asking its fellow shareholders to elect four new candidates to Luby’s nine-member board at the company’s annual shareholder meeting, expected in early 2019.
The New York hedge fund, in its preliminary proxy statement filed Tuesday with the Securities and Exchange Commission, said it believes Luby’s board needs immediate change after its stock price plummeted 69 percent over the past decade to $1.46 even as the national economy boomed.
“We’ve owned Luby’s stock for more than 10 years, and it’s been a very disappointing 10 years of share price underperfor-
mance and declines in book value,” said Jeff Gramm, Bandera’s co-founder and portfolio manager. “Without material changes to the board, I believe these problems are only going to get worse.”
Bandera’s candidates for Luby’s board are: Gramm; his father and former Sen. Phil Gramm of Texas; Stacy Hock, chairwoman of Texans for Education Opportunity; and Savneet Singh, managing partner of New York-based Tera Holdings.
In response, Luby’s recommended that shareholders re-elect eight incumbent board members and elect a new board member to replace Peter Tropoli, who stepped down to be the company’s general counsel. The company, in its preliminary proxy statement filed Wednesday, did not identify their ninth nominee, who is awaiting approval from his or her current employer to serve on Luby’s board, but said the board had been considering and interviewing the candidate for several months.
Luby’s said it had no choice but to pursue a proxy fight after Bandera refused to allow its candidates to be interviewed by the board. The company also is asking shareholders to approve an amendment that would eliminate a board rule that requires a supermajority of shareholder votes to remove members.
“The board has carefully reviewed Bandera’s nomination notice consistent with its fiduciary duties and has unanimously recommended that shareholders instead vote in favor of the nominees recommended by the company — in part because Bandera refused to allow the board to interview its candidates,” a Luby’s spokesman said in an email.
Proxy fights, which are like political elections, have become more common in corporate America over the past decade with the rise of activist investors looking to turn around and capitalize on undervalued companies.
Nationally, there are between 100 and 130 proxy fights each year, launched by hedge fund investors, disgruntled shareholders and competitors looking to take over struggling companies.
Luby’s, founded in San Antonio in 1947 and known for its comfort foods such as the LuAnn Platter, has struggled to retain diners in recent years amid growing competition from fast-casual concepts that offer trendy foods and limited service that appeals to younger diners.
Christopher Pappas and his brother, Harris, of the Houston-based Pappas Restaurants, have led Luby’s since 2001. The company moved to Houston in 2004.
Luby’s reported a loss of $33.6 million this fiscal year, and its stock has lost twothirds of its value since January. The company, in its latest annual financial report, posted $365.2 million in sales over the year, down 3.7 percent from the previous year. Same-store sales fell a half-percent.
Luby’s earlier this year issued a statement of going concern, calling into question whether it can stay in business.
Bandera last month issued a public letter criticizing Luby’s initiative to close and sell some of its company-owned restaurants to pay down $39.3 million of debt. Luby’s owns and operates 146 restaurants nationally under the Luby's Cafeteria, Fuddruckers Restaurants and Cheeseburger in Paradise brands. Bandera said Luby’s nearly $200 million in holdings, most of it in real estate, is the company’s most valuable asset.
Bandera, which has invested in restaurant chains such as Famous Dave’s BBQ, has participated in a few proxy battles, but has never led one until Luby’s. The hedge fund faces an uphill battle to get its candidates on Luby’s board. The Pappas brothers own 36.8 percent of Luby’s stock while Bandera owns 9.5 percent.
“Without material changes to the board, I believe these problems are only going to get worse.”
Jeff Gramm, investor