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Luby’s, the listed cafeteria-style restaurant chain, has seen its chances of staying independent lessened since activist shareholder Ramius acquired a position, a source familiar with Ramius and two analysts have told mergermarket.
Hedge fund Ramius Capital Group LLC recently nominated four candidates to the 10-member board after pressing the company to consider a sale of the Houston-based restaurant chain. Shareholders are scheduled to vote at the annual meeting on 15 January.
The source familiar with Ramius said the hedge fund has a track record of pushing companies into a sale, or restructuring. ”Sometimes they look for a divestiture of assets, or for where a company has grown as far as it can, and it’s time to sell,” the source said.
The source and analysts cited Ramius’s experience with Ohio-based Lamson & Sessions, California-based Phoenix Technologies and Georgia-listed S1 Corp.
S1, an Atlanta-based company that creates financial and payment software, saw Ramius accumulate nearly 11% of its stock, which it continues to hold as of 30 June, according to US regulatory filings. Last year, Ramius pushed S1 to conduct a strategic review of its business. That led to last year’s appointment of a new chief executive, and two stock-buybacks by the company over the past year.
With Milpitas, California-based Phoenix Technologies, Ramius took a 12.2% position, then offered to buy the software company for USD 115m. The offer was rejected by the company’s board in January.
In the case of Lamson & Sessions, the Cleveland-based maker of plastic pipe, conduit and home electrical products, Ramius took a 9% stake in the company earlier this year, then announced a plan to run a slate of candidates for the company’s board.
In August, electrical components manufacturer Thomas & Betts ended up buying Lamson for roughly USD 450m to avert a proxy battle with Ramius.
According to analysts, Ramius has pursued similar proxy battle tactics with Kensey Nash, an Exton, Pennsylvania-based medical device maker, and South Korean video game developer Gravity.
Potential buyers, according to the source familiar and two analysts, could come from among Luby’s rivals, or private equity.
Rivals include Bob Evans Farms, Buffets Holdings, CBRL Group, Denny’s, and Ryan’s Restaurant Group.
Spokespersons for both Luby’s and Ramius declined to comment.
Luby’s has said publicly it wants to open 45 to 50 new stores over the next five years, despite working on a turnaround over the past six years that saw little in the way of store growth, according to the analysts. In a July regulatory filing, Ramius complained about the connection between Luby’s and Pappas Restaurants, a private company also based in Houston. Christopher Pappas, president and chief executive of Luby’s, is also chief executive of Pappas Restaurants.
His brother, Harris Pappas, sits on Luby’s board and is its chief operating officer. He also is president of Pappas Restaurants. In addition, Pappas Restaurants is the principal client of a third director, Houston attorney Frank Markantonis.
As of 5 November, Ramius held a 6.57% stake in Luby’s, which equates to 1,864,500 shares, according to filings with the US Securities and Exchange Commission. The hedge fund is the third largest holder behind the combined 24% owned by Christopher and Harris Pappas.
In the earlier July filing, a Ramius partner Jeffrey Smith said the company could draw a premium price, possibly from a private-equity buyer. He suggested that an alternative could be a sale and leaseback transaction. Luby’s real estate could be worth $206 million to $265 million before taxes in a sale and leaseback deal, according to Ramius.
Luby’s has a market capitalization of USD 272m.
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