HOUSTON In the midst of a proxy battle over board seats at Luby’s Inc., independent proxy adviser Proxy Governance on Wednesday said shareholders of the cafeteria operator should vote to elect three of the four nominees on the dissident slate championed by shareholder Ramius Capital LLC.
Proxy Governance said the refusal by Luby’s current board “to effect the shareholders’ will while providing only the same generic argument for continuity is, to us, evidence of an entrenched board.”
Houston-based Luby’s, which operates about 130 namesake cafeterias, has been battling New York-based Ramius, its largest independent shareholder, since the summer. Ramius holds about 7.6-percent of Luby’s shares outstanding.
The investment firm has called for a sale of the restaurant company or sale-leaseback transactions on its real estate. Ramius also has questioned the dual corporate roles of Luby’s chief executive and COO, Chris and Harris Pappas, who together run the separate Pappas Restaurants, also based in Houston. The Pappas brothers each own 12 percent of Luby’s shares.
In October, Ramius officially nominated four candidates for Luby’s board, including 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. On Wednesday, Proxy Governance released a report calling for the election of Farrar, Grube and Pannek.
Late Wednesday, Luby’s released a statement criticizing Proxy Governance’s recommendation.
"We believe that Luby's shareholders should be very concerned with the qualifications of the Ramius nominees and that Proxy Governance missed the mark,” Luby’s said in the statement. “We believe that the restaurant experience of the Ramius nominees, which features failed strategies and poor execution at a number of restaurant concepts, is neither distinguished nor relevant to Luby's casual-dining business model.”
Four seats on Luby’s 10-member board will be up for re-election at the company’s annual meeting in Houston on Jan. 15. The board positions held by Luby’s CEO Chris Pappas and COO Harris Pappas, along with four others, are not to be filled.
“We have concerns regarding the current board’s apparent unwillingness to address governance concerns raised by a shareholder majority or to genuinely consider strategic options raised by the dissident shareholder,” Proxy Governance said.
The advisory firm also pointed to the Pappas brothers’ dual roles, saying the “potential for conflict is too great to ignore É The time demands for running two large companies must inevitably become a factor.”
Also attempting to sway shareholders, Luby’s sent another letter to its stakeholders on Wednesday, encouraging a vote for the current board members. The company said in the letter that Ramius is interested only in a “short-term, self-serving financial releveraging scheme.”
For the company’s latest quarter ended Nov. 21, Luby’s increased its net profit to $4.8 million, or 17 cents per share, from net income of $1.9 million, or 7 cents per share, in the year-ago first quarter of fiscal 2007. Total sales in the latest quarter totaled $73.4 million, a decrease of 0.4 percent from a year ago. Same-store sales fell 3.4 percent.