Bravo Brio

Bravo Brio shareholder steps up pressure

In letter, TAC Capital criticizes company’s board and management on performance

Bravo Brio Restaurant Group Inc.’s largest shareholder complained about the company’s sales and stock performance, stepping up pressure on the board and management as they evaluate the company’s strategic future.

TAC Capital LLC, owner of 15 percent of Bravo Brio stock, listed several complaints in a letter to the company and its board of directors. 

Donald Adam, chairman of TAC, said in the letter that he was “extremely disappointed” with Bravo Brio’s fourth quarter performance. Revenues fell 3.2 percent. Same-store sales declined 5.5 percent, continuing a decline that started in 2013, and restaurant margins fell to 12.7 percent from 18.2 percent in 2012.

“We believe that the company’s latest results demonstrate that the current board of directors and management team have not made the proper strategic and operational decisions to unlock value for all shareholders,” Adam wrote, adding that same-store sales have declined 2 percent so far this quarter.

A representative for the company referred to a release from early February, in which Bravo Brio said it offered TAC two seats on the company’s board but TAC rejected the offer.

“The board intends to examine all alternatives in order to enhance long-term shareholder value,” the release said.

TAC, based in College Station, Tex., revealed a sizable, passive investment in Bravo Brio last July, but became an activist investor in January. 

In February, Bravo Brio announced that it was working with investment bankers to explore strategic alternatives, likely meaning the company is for sale. 

Several restaurant chains in recent months have attracted activist investors amid weak same-store sales and falling stock prices, including Fiesta Restaurant Group Inc., Buffalo Wild Wings Inc., and Chipotle Mexican Grill Inc.

Sales problems have worn away at the company’s stock, which has fallen by two thirds since its 2010 initial-public offering. Adam in his letter wrote that the company has underperformed other restaurants and the broader stock market over that period.

“We attribute the market’s substantial discount to the company’s misguided strategy, poor oversight by the board of directors and ineffective management,” Adam wrote. “We have lost confidence that the current board of directors and executive team will be able to unilaterally effect a turnaround and deliver the value that Bravo Brio shareholders deserve.” 

Adam was particularly critical of CEO Brian O’Malley, named CEO in December 2015. O’Malley had been the company president and chief operating officer. “In our view, many of Bravo Brio’s numerous failings are operational in nature, and appointing the former officer partially responsible for these issues as chief executive officer and a director ensures more of the same,” Adam wrote. 

And Adam complained that the company delayed its annual meeting of shareholders in December, rather than the first week of May. Adam wrote that the board took the action the day before negotiations between him and the company over board representation broke down.

Adam worries that the board “lacks the independent leadership necessary” to structure a deal that creates shareholder value. 

“Given the company’s recent performance, a fulsome evaluation of strategic alternatives is certainly warranted,” Adam wrote. “We have serious doubts, however, that the current board of directors and management team have the appropriate perspective, expertise and motivation to enhance shareholder value.” 

Contact Jonathan Maze at [email protected]

Follow him on Twitter: @jonathanmaze

TAGS: Finance
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