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On the Margin
Bloomin’ Brands sells 54 restaurants, mostly Outback, to franchisees Outback Steakhouse

Activist investors have a taste for restaurants

Blog: Bloomin’ Brands, Potbelly, Papa Murphy’s among companies facing activist shareholders

This post is part of the On the Margin blog.

Stocks of many restaurant companies have been falling all year, which means it’s now activist-investing season. 

Just on Monday, the activist firm Jana Partners said that it had acquired nearly 8 million shares, or just shy of 9 percent, of Outback Steakhouse owner Bloomin’ Brands Inc. 

Meanwhile, shareholder Privet Fund declared itself an activist at the Chicago-based sandwich chain Potbelly Corp. Privet owns 1.3 million shares, or about 5.2 percent of Potbelly stock.

Also, last week, activist investor Misada Capital Holdings LLC entered into a non-disclosure agreement with Papa Murphy’s Holdings Inc. The company and the investor are in talks over board membership and corporate governance. The agreement expired Dec. 14. Misada owns 9.2 percent of Papa Murphy’s shares. 

Oh, and let’s not forget Jack in the Box Inc., which has some activist investors — including Jana and onetime Darden Restaurants Inc. activist Starboard Value LP — buying up some shares.

The NRN Restaurant Index is up more than 17 percent this year, thanks entirely to the strong performance of large-cap stocks, notably McDonald’s Corp., Yum Brands Inc., and Restaurant Brands International Inc.

But small-cap restaurant companies have struggled, and the majority of restaurant stocks have actually fallen this year. These companies tend to lure activist investors who seek board membership or other changes designed to bolster the target companies’ stock, at least temporarily.

Potbelly and Papa Murphy’s have struggled and are making significant changes. 

This summer, an activist investor publicly said that Potbelly should either make big changes or sell the company. Potbelly added a new director to its board, and then said it planned to slow development and close underperforming locations.

Still, the chain of more than 400 mostly company-run sandwich shops could theoretically franchise more locations or make other changes activists frequently demand of restaurant companies. 

Papa Murphy’s, meanwhile, has been struggling the past couple of years. It plans to refranchise most of its 148 company locations, even as many franchisees have closed locations themselves

Jack in the Box, meanwhile, has been exploring alternatives for its fast-casual burrito chain Qdoba Mexican Eats for some time.

Bloomin’ Brands is a more interesting case. The company’s same-store sales struggled in the third quarter, but sales improved in October. It is also working on increasing its takeout business. 

But it also operates four brands, and investors routinely question the company about its ownership of those four brands. An activist could theoretically push Bloomin’ to sell one of those brands.

Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.

Contact Jonathan Maze at [email protected]

Follow him on Twitter at @jonathanmaze

TAGS: Finance
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