Mill Road offers $27.9 million for Kona Grill

SCOTTSDALE Ariz. Following the resignation of the chief executive from Kona Grill Inc. last week, Mill Road Capital L.P. of Greenwich, Conn., Monday again offered to buy the company in a deal valued at $27.9 million.

Saying the 22-unit American grill and sushi bar chain was “at a crossroads,” Mill Road on Monday offered $4.60 a share, nearly double the May 15 closing price of $2.29, to take Kona Grill private.

It is the second time Mill Road has made a bid for the casual-dining company. Scottsdale-based Kona rejected in March 2008 [3]an offer by Mill Road to buy all of the restaurant company’s outstanding stock for $10.75 a share.

Apitched battle between Mill Road, which already owns 640,062 Kona Grill shares, or about 10 percent of the company, and the chain’s management led to the May 11 resignation of Marcus E. Jundt as chairman, president and chief executive.

In documents filed with the Securities and Exchange Commission Monday, Mill Road said: “The recent departure of the company’s chairman and CEO has placed Kona at a crossroads. The company and its employees are facing a very difficult operating environment for restaurants without the leadership and vision that a permanent CEO should provide. … We strongly believe that Kona has a significantly better chance of successfully addressing the competitive, leadership and capital issues as a private company.”

Shareholders in late April approved a “withhold authority” vote on Jundt’s leadership during the company’s annual meeting.

The company said Mark Bartholomay, Kona’s chief operating officer, would serve as interim president and chief executive until a permanent successor to Jundt was named.

In a statement issued Friday, Jundt said: “It is in the company's best interest for me to step aside at this time. I’ve been involved with the company since its inception, and I always will believe strongly in the Kona Grill concept and brand. … If our stockholders believe it is time for a new steward of the company, then I must respect their views and decision.”

Mark Zesbaugh, chairman of Kona Grill’s audit committee, said the board respected Jundt’s decision. “His energy and his enthusiasm for the Kona concept were significant factors in the development of the company,” Zesbaugh said.

Separately, reports from Minnesota indicated a new Kona Grill in Eden Prairie had been put on hold. A “For Lease” sign recently was put on the property.

Shareholder discontent had been brewing at Kona since late last year. In late December, the company announced it would be selling discounted shares to Marcus Jundt’s father, James Jundt, who already owned 4.9 percent of the company’s stock. The $1 million deal equated to $1.19 a share at a time when shares were trading at more than $2. Mill Road Capital, which had offered to take Kona Grill private earlier in 2008, on Jan. 1 tendered an alternative $1 million deal to Kona’s board to help the company raise capital.

At that point, Kona had about 6.5 million shares outstanding, and over the prior 52 weeks the stock had traded as high as $14.77 per share and as low as $1.10 per share. On Jan. 2, shares closed at $2.46.

On Jan. 2, Justin Bennitt, managing member of Clarke Bennitt LLC, an investment management firm in Chadds Ford, Pa., wrote to the Kona CEO to express his shock at the sale agreement.

“Offering shares to James Jundt [your father] at a ridiculously low price of $1.19 for nearly 5 percent of the company is completely unacceptable,” Bennitt wrote. “To further compound the liquidity problem by offering stock to your father at an all-time-low price crosses the boundaries of good taste and in my humble opinion is not operating as a shareholder-friendly CEO.”

Such grumblings led to the vote on April 30 at the company’s annual meeting, when about 53 percent of Kona's voting shares withheld their support for Marcus Jundt. Jundt was named CEO on Feb. 1, 2006. Share prices have dropped 78 percent since then.

For the quarter ended March 31, Kona reported a net loss of $1.1 million, or 17 cents a share, compared to a net loss of $673,000, or 10 cents a share, in the year-earlier quarter.

The company said its first-quarter revenue rose 7.5 percent to $19.5 million, driven by the openings of four new restaurants since June 2008. Same-store sales fell 9.6 percent for the quarter.

Contact Ron Ruggless at [email protected] [4].