Benihana investors, management battle

MIAMI Ahead of a Monday vote on Benihana Inc.’s pending merger with a subsidiary that will effectively issue 12.5 million shares of new common stock and raise $30 million, supportive corporate management and major shareholder opponents were publicly crossing swords.

At the special shareholder vote scheduled for next week, the parent to three Japanese-themed chains is seeking approval to merge with its BHI Mergersub subsidiary as one of many moves to shore up funds and better its balance sheet.

Richard C. Stockinger, president and chief executive of Benihana, which is based in Miami, said in a statement Thursday that not to approve the merger would be “foolhardy.”

The merger, he added, “was one step in a series of actions being taken to ensure the company had the flexibility and capability to take advantage of opportunities and/or to respond to rapidly changing economic conditions and credit markets.”

On Wednesday, Coliseum Capital Management LLC hedge fund of New York, which holds 9.9 percent of Benihani’s common stock, said it opposed the new creating of shares via the merger. Adam L. Gray, Coliseum’s managing director, said in a letter to Stockinger that Benihana “has not provided compelling rationale” and that “an equity issuance of this magnitude would be significantly dilutive to existing shareholders.”

Heirs to Benihana founder Rocky Aoki expressed similar concerns in a Feb. 12 filing with the Securities and Exchange Commission. Aoki’s children – Kevin, Kanna, Kyle and Grace – said they opposed the issuance of new shares when they are trading near historic lows. Aoki set up the Benihana of Tokyo trust for his family, which remains the largest shareholder in the company with about 38.2 percent of the company’s common stock.

Benihana shares closed at $5.07 per share Thursday, down 6.1 percent for the day. During the past 52 weeks, shares have traded between $1.62 and $9.55 per share. Follow Benihana’s stock moves [3]on NRN’s Market Monitor [4].

Stockinger, in his statement Thursday, conceded that “although the company’s sales and earnings have been softer than management would have hoped over the past year, we are confident that our recently implemented ‘renewal program’ will help to mitigate or reverse these trends. Still, we remain vulnerable to fluctuations in the larger economy and other risks.”

In mid-January, Benihana reported that the company’s three chains were still posting soft sales trends [5]. Third-quarter same-store sales fell 3.4 percent companywide, reflecting declines of 5.9 percent at Benihana units and 1.6 percent at the Haru concept. RA Sushi logged a 4.4-percent increase in same-store sales. Total sales for the third quarter, which ended Jan. 3, increased 4.8 percent to $70 million.

Stockinger said sales results led the company to fail to meet required ratios under its credit agreement with Wachovia Bank N.A. Wachovia amended the credit line, which the company said “will materially reduce the funds available,” reducing its facility from $60 million to $40.5 million. Further reductions are expected later this year and next.

Stockinger said the company also faces “long-running litigation with the former minority owners of the company’s Haru segment” and a potential payment of between $3.75 million and $10 million.

Benihana began working with a turnaround firm [6]earlier this year.

“In the face of these developments,” Stockinger said Thursday, “the board does not believe it would be prudent to do nothing and accordingly has taken a series of steps (all of which have been previously publicly announced) to ensure that the company is in the strongest possible position to meet any unanticipated challenges it may face.”

The board, he added, still urged shareholders to approve the merger.

Gray of Coliseum Capital, however, said in his Wednesday letter and SEC filing that “the company appears to be generating positive cash flow with which to invest in the business and/or amortize debt,” and “it would appear that there is sufficient liquidity with which to run the business.”

Benihana owns and operates 98 restaurants in the United States, including 64 Benihana teppanyaki, nine Haru sushi and 25 RA Sushi Bar restaurants. The company also franchises 23 Benihana units in the United States, Latin America and the Caribbean.

Contact Ron Ruggless at [email protected] [7].