Activist investor JCP Investment Management LLC pressed its case for expanded representation on the Fiesta Restaurant Group Inc. board with an open letter Wednesday to the company’s chairman.
JCP, which owns about 8.7 percent of shares in the Dallas-based parent to Pollo Tropical and Taco Cabana, nominated three candidates in January to the Fiesta board.
JCP managing director James Pappas wrote Wednesday that “six of the seven incumbent directors have overseen a 60-percent-plus decline in Fiesta's share price from its 2015 peak, and under their leadership the company's total shareholder returns have been negative over the past one-, two- and three-year periods.”
Fiesta, through its communications firm, issued a statement Wednesday afternoon: “We have received the letter that JCP publically distributed this morning. We will respond and present our director recommendations in due course when we file our proxy materials with the SEC [Securities and Exchange Commission].”
JCP Investment, which increased its holdings from 7.1 percent of shares in January, nominated three board candidates: Pappas; John Morlock, chief operating officer of Sbarro; and private investor Joshua Schechter.
JCP, which in the past has targeted such restaurant companies as J. Alexander’s and Jamba Juice, said in the letter that, “despite our nomination, we continued to seek an amicable resolution with the board in an effort to avoid an expensive and time-consuming proxy contest.”
Of the current board members, one has a personal investment in Fiesta, JCP said.
“Paul E. Twohig, who was just appointed as a director effective Feb. 28, 2017, is the only director who has made an open market purchase of Fiesta shares,” JCP said. “In addition, we note that three of the seven directors are affiliated with Jefferies, including directors Barry J. Alperin and Brian P. Friedman, who are up for election at the upcoming annual meeting.”
Jefferies, which at onetime owned about 28.3 percent of Fiesta shares, sold its entire position in 2013, JCP noted.
“We find the board's recent offer contemplating the addition of one of our candidates now and a separate individual to be identified by the board at a later date to be unacceptable given the lack of assurance that the person selected would be mutually agreeable to both parties,” Pappas said in his letter.
For the fourth quarter ended Jan. 1, Fiesta reported net income of $2.4 million, down from $8.8 million in the same quarter last year. Revenue declined 4.6 percent, to $171.3 million, from $179.5 million the previous year.
Same-store sales at Pollo Tropical declined 4 percent in the fourth quarter, and fell 3.5 percent at Taco Cabana.
As of Jan. 1, Fiesta had 177 company-owned Pollo Tropical units and 166 company-owned Taco Cabana restaurants. The company also franchised 35 Pollo Tropical units and seven Taco Cabana locations.
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