HOUSTON — Luby’s Inc., operator of 128 namesake cafeterias, is under fire again from its largest independent shareholder, the 7.1-percent stakeholder Ramius Capital Group LLC, which wants Luby’s to form a more independent board and to seek strategic alternatives for the company, including a possible sale.
After publicly questioning Luby’s corporate oversight in July, Ramius Capital nominated this month four candidates for Luby’s board of directors, including three restaurant veterans from Wendy’s, Baja Fresh and Fuddruckers. A vote is expected to occur at Luby’s next shareholder meeting, which is scheduled for Jan. 15, 2008, in Houston.
Ramius’ slate of candidates includes Stephen Farrar, a former senior vice president at Wendy’s International Inc.; William Fox, a former director at Nephros Inc., a medical device company; Brian Grube, former chief executive and president of Baja Fresh Mexican Grill; and Matthew Pannek, former president and chief executive of Magic Brands LLC and Fuddruckers Inc.
“We firmly believe the company is undervalued,” Ramius partner Jeffrey C. Smith said. “We believe the board can be strengthened to enable a higher probability of the most successful outcome [for the company].”
In July, Ramius charged that there were conflicts of interest for members of Luby’s management team — especially chief executive Chris Pappas and his brother Harris Pappas, Luby’s chief operating officer. The Pappas brothers also serve as executives at Pappas Restaurants, a group of more than 70 restaurants also based in Houston. At that time, Ramius had said it was “concerned that significant potential conflicts of interest and time” exist because of the dual corporate roles.
Ramius also has lobbied for Luby’s to explore sale-leaseback options, which the investment fund valued as high as $265 million, to fund share repurchases and a “substantial” one-time shareholder dividend. In addition, Ramius has recommended a possible sale of Luby’s.
Earlier this month Luby’s reported that its latest annual net income fell 44.5 percent from a year earlier to $10.9 million, or 40 cents per share. Sales for the year ended Aug. 29 slipped 1.3 percent to $320.4 million. Same-store sales fell 1.5 percent. In July, Luby’s secured a credit facility of $100 million to finance growth.