Luby’s Fallen dining staple plans to liquidate assets.
Texas dining staple will liquidate assets, pass the proceeds on to shareholders
Luby’s Inc. said Tuesday that its board voted Sept. 4 to liquidate its businesses and distribute any proceeds to investors.
The company, which traces its roots to 1947 and was for decades a Texas dining staple, said it would liquidate its restaurant businesses, real estate and the company’s culinary contract services business. The company said it hoped to see between $92 million and $123 million in proceeds from the liquidation.
For the quarter ended June 30, Luby’s valued its “property and equipment” at $104 million. It had long-term debt of $57.3 million and obligations on operating leases of $22.7 million.
The liquidation plan is a necessary step, Chairman Gerald Bodzy said, but the company still aims to sell to a buyer that would keep the restaurants open. He declined to comment on the level of interest Luby’s has seen from potential buyers.
Luby’s has no immediate plans to close restaurants, he said, though some locations have not reopened since the start of the pandemic, and that’s not likely to change.
“There’s a few that aren’t going to be reopened,” he said. “And then it’s up to a buyer. And again, there’s no guarantee that there’s going to be a deal with a buyer.”
While the details and timing of the liquidation, which still requires approval from shareholders, remains uncertain, the bulk of it is likely to happen by year’s end, said David Littwitz, a Houston restaurant broker and consultant.
“Once you’ve announced,” he
said, “you want to strike while the iron’s hot. The prime locations will start to be moved quickly.”
Buyers interested in its real estate will likely want to tear the buildings down rather than undergo a costly renovation, he said, and so Luby’s is likely to see a lot of lowball offers.
“If you buy it low enough, you can tear the thing down, take the real estate and do something new with it,” he said.
In its Plan of Dissolution and Liquidation filed Tuesday with the SEC, the company said its assets “may be sold in one transaction or in several transactions to one or more buyers.”
According to its latest quarterly report, filed with the SEC on July 20, the company owned or leased 108 restaurants, “of which 76 are traditional cafeterias, 31 are gourmet hamburger restaurants, and one is a casual dining restaurant and bar.”
Luby’s said that, as of June 3, it operated 27 culinary contract services locations, of which 20 were in Houston. The division provides food services hospitals, corporate dining facilities, sports stadiums and a senior care facility.
It also reported that, as of June 3, 37 franchise owners operated 83 Fuddruckers restaurants.
The current iteration of the business began to take shape when prominent Houston restaurateurs Chris and Harris Pappas took the helm of the company in 2001, intent on turning around an iconic chain that had begun to flounder.
Over time, however, tastes began to shift as Americans began to veer away from cafeteria-style dining. Sales had been declining recently, and the COVID-19 pandemic, which shut down in-store dining for months, may have been the final blow.
Luby’s shares closed Tuesday trading at $2.22, up 111 percent from their Friday close. Volume surged on the news, with nearly 165 million shares traded Tuesday, compared to fewer than 100,000 in the days leading up to the announcement.
Executive departures
As it continues to wind down operations, the company entered into severance agreements “upon the occurrence of certain events” with three senior executives in mid-August.
According to filings with Securities and Exchange Commission, Chief Operating Officer Benjamin Coutee, Chief Financial Officer Steven
Goodweather and Chief Accounting Officer Philip Rider will be able to receive termination payments if they are not hired by a successor or buyer of the company.
Coutee was entitled to 100 percent of his base salary, which was $283,000 in 2019, according to the company’s most recent proxy statement. Goodweather and Rider were entitled to 100 percent and 83 percent, respectively, of their base salaries, which were not listed in filings.
In addition, each was offered stock and cash bonuses “designed to incentivize each recipient to complete the sale of the Company’s operations and assets.”
Each of the three exercised options, acquiring shares through grants made under the company’s “bonus opportunity agreement and pursuant to the terms of the restricted share award Agreement,” the company said in separate Aug. 26 SEC filings.
Coutee exercised an option for 30,000 shares, after which he held 84,900 shares, the company said. Goodweather acquired 24,000 shares, increasing his holdings to 43,000, and Rider acquired 24,000 shares, the entirety of his current holdings. Each paid $1.10 per share, the price at which Luby’s stock closed on Aug. 25, the day the transactions took place.
For each, Luby’s reported, “One-third of the Restricted Shares shall be earned upon the closing of a sale of each of the following assets of the Company or its subsidiaries: the Culinary Contract Services business line, the Fuddruckers business line and 30 or more of the Company’s Luby’s Cafeterias.”
Its chief financial officer, K. Scott Gray, who had been with the company since 2001 and had previously served as director of internal audit for Pappas Restaurants since 1996, left the company on April 4. Pappas Restaurants is owned by Christopher Pappas, Luby’s chief executive, and his brother Harris, a former Luby’s director.