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Vintage Capital makes Red Robin takeover offer

Activist investor pushes for sale; stock price spikes

Private equity firm Vintage Capital Management LLC offered on Thursday to buy Red Robin Gourmet Burgers Inc. for $40 per share, according to regulatory filings.

Vintage, which said it was the third largest shareholder in the Greenwood Village, Colo.-based casual-dining brand, said it would push for removing “some or all of the current members” of the company’s board if they didn’t conduct “a fulsome and transparent review of strategic alternatives.”

Brian Kahn, manager of Vintage Capital, said in a letter that that his company wanted to find an “A-plus” operator as a new CEO for the chain. The company has been led by interim CEO and board chair Pattye Moore since the April retirement of Denny Marie Post.

Vintage holds 1.5 million Red Robin shares, or 11.5% of the total.

“It is clear that many such quality candidates are refusing to entertain the opportunity due to a lack of confidence in the board’s leadership and Red Robin’s disastrous operating and market performance,” he said.

Red Robin’s share price has tumbled in recent weeks from $34.67 on May 21 to as low as $24.21 on Wednesday. The stock spiked past $33 Thursday on news of the Vintage Capital’s offer.

Red Robin’s same-store sales for the first quarter of 2019, ended April 21, fell by 3.3% and traffic was down by 5.5%.

The chain closed 10 underperforming locations, including seven in malls. Company officials had said earlier that mall locations were dragging down overall sales at the chain.

Management also said during the chain’s most recent earnings call that it has been undertaking other initiatives, such as introducing waiter headsets for faster service, and is considering streamlining its menu.

Red Robin’s board also has taken measures to forestall a hostile takeover, including exercising a so-called “poison pill” to make such a takeover more expensive.

On June 4, it declared a “share purchase right” that allows shareholders, excluding those trying to purchase the company, to buy twice the shares they already own at half price.

“We have sought to communicate with management and the board in an effort to understand, and ultimately improve, the strategic direction of the company,” Kahn said in Thursday’s letter.

However, after the recent adoption of a poison pill and the retention of a slew of highly paid takeover defense advisers, we have serious concerns that management and the board would prefer to maintain the status quo and entrench themselves in their current positions rather than act in the best interest of shareholders,” Kahn wrote.

In a statement Thursday afternoon, Red Robin’s management said Vintage’s letter took it by surprise.

“In multiple conversations with Vintage, we have expressed our openness to Vintage’s participation in our ongoing search to identify a world-class CEO and to maintaining a constructive dialogue,“ the company said. “Given our dialogue to date, we were surprised by the content of the letter we received today, as Vintage has not been willing to propose any CEO candidates.”

The company said it had discussed with Vintage the April retention of Elliot Group to search for a CEO and the board’s search committee had interviewed candidates. “We are pleased with our progress to date and confident we will identify an excellent leader for Red Robin,” the company said.

The statement outlined plans for renewing growth, including reinforcing Red Robin’s “compelling value proposition” to stabilize dine-in revenue while continuing to build its takeout and catering businesses. It reiterated its plans to implement new digital platforms and incorporate other new technology, without going into detail, and it said it would be “selectively refranchising and reassessing our real estate portfolio.”

The company did not rule out a takeover offer.

“The company’s board of directors is focused on enhancing shareholder value and is mindful of its fiduciary duties to all shareholders,” it said. “Consistent with its fiduciary duties, the board would of course consider any bona fide offer made by Vintage.”

Red Robin has about 560 restaurants in the United States and Canada.

UPDATE June 13, 2019: This story has been updated with comments from Red Robin's management.

Contact Bret Thorn at [email protected]

Follow him on Twitter: @foodwriterdiary

Correction: June 17, 2019
This story has been edited to correct the spelling of The Elliot Group.
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