Red Robin Gourmet Burgers Inc. inched closer to the possibility of an acquisition Monday with the modification of a “poison pill” provision that was set up to prevent hostile takeovers.
The announcement appeared to be a concession to shareholder groups that have pressured Red Robin in recent weeks to eliminate the poison pill, which the company calls a “shareholder rights plan.” The plan was enacted earlier this year to prevent a hostile takeover by prohibiting any potential buyer from acquiring a more than 15-percent stake without board approval.
In a letter to shareholders on Monday, Red Robin’s chair Pattye Moore and chief executive Steve Carley said the company would amend the shareholder rights plan so that it would not prevent the consummation of an acquisition that is supported by the majority of shareholders.
In addition, the company is raising from 15 percent to 16.5 percent the threshold of stock acquired to trigger the plan’s protections. The poison pill will expire at the next annual meeting in May unless a majority of shareholders approve its extension, the letter said.
The board also will put before a shareholder vote in May a proposal to declassify the board of directors, a move pushed by activist investor group Oak Street Capital Management LLC earlier this month. Declassifying the board would require directors to be elected annually.
Oak Street, which owns about 13.3 percent of Red Robin’s outstanding shares, also called for the removal of the poison pill and other changes.
Another investor group — the Clinton Group Inc. and Spotlight Advisors LLC — also has pushed for elimination of the poison pill, saying the company’s turnaround efforts would be better accomplished as a private company. On Monday, Clinton and Spotlight upped their stake in Red Robin from 8.95 percent to 9.72 percent, according to filings with the U.S. Securities and Exchange Commission.
Clinton and Spotlight officials noted in their filing that they had discussed their concerns with Red Robin management last week and that the company reiterated that it would continue to be open to merger and acquisition proposals.
In their letter Monday, Moore and Carley said the shareholder rights plan was designed to allow the board and the new chief executive “time to comprehensively identify and evaluate a strategic direction for the business against a challenging consumer environment.”
At this point, however, the changes are appropriate “given the progress the company is making, and, after feedback from our shareholders,” the letter said.
Red Robin officials also reiterated plans to offer more detail on a revitalization plan dubbed Project RED at the next earnings conference call scheduled for Feb. 17.
Project RED’s strategic goals include driving guest traffic and average check; improving guest frequency and enhancing sales of new menu items; and optimizing the food and beverage revenue mix.
At the end of its third quarter in October, Greenwood Village, Colo.-based Red Robin had 312 corporate and 134 franchised locations.
Contact Lisa Jennings at [email protected].