HOUSTON Dissident shareholders pressing to put four new directors on the 10-member board of cafeteria operator Luby’s Inc. failed in their proxy battle at the annual shareholders’ meeting here today.
Also today, Luby’s board unanimously voted to put before shareholders next year a plan to declassify, or stagger, board terms, a step that could make a board takeover more difficult.
Ramius Capital Group LLC of New York and Starboard Value and Opportunity Master Fund LLC, an affiliate of RCG Starboard Advisors, said it appeared that shareholders had re-elected the incumbent board, which was supported by management. The incumbents are Judith B. Craven, Arthur R. Emerson, Frank Markantonis and Gasper Mir III, who is chairman of the board.
Ramius Partner Jeffrey C. Smith said, “Although we are disappointed that our nominees were not elected to the board of Luby’s, we believe the independent shareholders of Luby's have sent a strong message.”
“Today's vote demonstrates that Luby’s shareholders believe we are taking the right steps, with the right board and management team, to build shareholder value,” said Chris Pappas, Luby’s president and chief executive. “We are very excited about our strategic growth plan to build 45 to 50 new restaurants over the next five years; upgrade and remodel Luby’s existing restaurants; and grow the company’s culinary contract business to provide food service at healthcare facilities.”
Ahead of today’s board election, Luby’s said its directors had unanimously voted to submit and recommend a proposal to declassify the board.
The proposal to amend Luby’s certificate of incorporation would go before shareholders at the annual meeting in 2009. Analysts said that declassifying board seats has the effect of making hostile takeover attempts more difficult because only a portion of the board stands for election during any given proxy vote. They said hostile shareholders must win more than one successive election to gain control of the board.
Luby’s said it had discussed the proposal with shareholders over the past several weeks. Chris and Harris Pappas, Luby's two largest shareholders with more than 25 percent of the shares, said they intended to vote in favor of the proposal to declassify the board. The change would require approval of investors at least 80 percent of outstanding shares.
Ramius Capital, which owns more than 7 percent of company shares, had nominated four candidates for the board: Stephen Farrar, William J. Fox, Brian Grube and Matthew Q. Pannek. All but Fox have restaurant-industry experience.
Luby’s said the final results of the election would be announced after tabulation and certification by the independent elections inspector, IVS Associates Inc.
Ramius, a New York hedge fund, has been calling for a sale of the restaurant company or sale-leaseback transactions on its real estate. Ramius also has questioned the dual corporate roles of the Pappas brothers, who together run the separate Pappas Restaurants.
Ramius’ Smith said in a statement: “If you exclude the Pappases’ share ownership above the 15-percent poison pill threshold from the vote, it appears that a majority of shares voting would have supported change to the Luby’s board of directors.”
Smith concluded, “This should be a wake-up call for the independent members of the Luby’s board. They must be accountable to independent shareholders and represent the best interests of all shareholders, not just the best interests of the Pappases. We hope and expect that the board will enter 2008 with a re-invigorated sense of independence and oversight. It is clearly needed at Luby’s.”
Luby’s operates 128 restaurants in Arizona, Arkansas, Louisiana, Oklahoma and Texas.