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Fidelity starts divesting its restaurants

Fidelity starts divesting its restaurants

This post is part of the On the Margin blog.

Earlier this week, Fidelity National Financial reached a separation agreement with J. Alexander’s, the upscale restaurant chain based in Nashville, in a spinoff that should be complete by the end of the month.

For Fidelity, the move will mark the end of its three-year ownership of the chain — and nearly half of that time was spent either marketing an IPO or preparing for the spinoff.

It also marks the beginning of the end for Fidelity’s short-lived restaurant ownership era.

In late July, the company said it also plans to spin off American Blue Ribbon Holdings, by the end of the fourth quarter. ABRH operates O’Charley’s, Baker’s Square, Village Inn, Max & Erma’s and Ninety Nine Restaurant & Pub.

Fidelity is a Florida-based title insurance company that has long been interested in the restaurant business. Its chairman, Bill Foley, was the CEO of CKE Restaurants in the 1990s. In 2007, Fidelity and Foley were part of the group that bid on Wendy’s Restaurants, which ultimately went to Arby’s owner Triarc Companies.

Fidelity started buying up restaurants after the recession, starting with a $55 million acquisition of Baker’s Square and Village Inn out of bankruptcy in 2009.

Fidelity and American Blue Ribbon then bought Max & Erma’s out of bankruptcy for $28 million the next year. And in 2012 it took the struggling O’Charley’s private in a $221 million deal.

That same year, Fidelity agreed to buy J. Alexander’s for $72 million. But another company made a higher bid. Shareholders revolted, and Fidelity was forced to increase its purchase price, ultimately paying about $87 million for the concept.

Yet Fidelity owned J. Alexander’s for just about a year before an activist investor, Corvex Capital Management, bought stock in Fidelity and began pushing the insurer to unload its ancillary investments, including those in the restaurant business.

In 2014, Foley told investors that both J. Alexander’s and American Blue Ribbon were “prime IPO candidates.”

And in September of last year, J. Alexander’s filed papers for an initial public offering, banking on a hot IPO market and a hope that investors would look favorably upon the upscale chain — which also operates the 10-unit Stoney River Steakhouse, acquired as part of the O’Charley’s deal.

But that didn’t work. In June, J. Alexander’s pulled its IPO in favor of a spinoff to investors. Its CFO, Mark Parkey, wrote in an SEC document that, “terms currently obtainable in the public marketplace are not sufficiently attractive.” In other words, investors were not eager to buy into the company.

Under the new spinoff plan, Fidelity will give shareholders 0.173 shares of J. Alexander’s stock for every share they own as of the close of business next Tuesday. The spinoff will take place by the end of the month.

Now American Blue Ribbon will be next. And then Fidelity will be out of the restaurant business.

For what it’s worth, most of the restaurant chains appear to be performing relatively well, at least from a sales standpoint. Six of the seven chains reported same-store sales growth in the second quarter, including 4.7 percent at J. Alexander’s, 1.3 percent at O’Charley’s, 2 percent at Village Inn and 1.6 percent at Baker’s Square.

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