Vintage Capital Management is eyeing some bottomless fries. And the private equity investor is apparently willing to go nuclear to get its hands on them.
The Orlando-based private equity firm has sent a letter to Red Robin offering to buy 100% of the restaurant chain for $40 per share, a staggering 57% premium to its closing stock price Wednesday. The deal would value the Colorado-based business at roughly $519 million. Vintage already owns 1.5 million shares, or about 11.5% of the company’s stock, which jumped roughly 32% Thursday to close at $33.48 apiece.
In the letter, the firm asked Red Robin to pursue strategic alternatives or sell the company outright, while casting doubt on board’s search for a new CEO after Denny Marie Post retired in April.
“We have sought to communicate with management and the board in an effort to understand, and ultimately improve, the strategic direction of the company,” Vintage Capital manager Brian Kahn wrote. “However, after the recent adoption of a poison pill and the retention of a slew of highly paid takeover defense advisors, we have serious concerns that management and the Board would prefer to maintain the status quo and entrench themselves in their current positions rather than act in the best interest of shareholders.”
Red Robin responded with a statement expressing some surprise over the claim, saying it “welcomed an open dialogue with its shareholders and appreciates input towards the goal of enhancing shareholder value.”
Vintage’s move is exactly what Red Robin has been trying to avoid. Earlier this month, the board of directors adopted a shareholders rights plan, also known as a poison pill, to “deter any entity, person or group from gaining control of Red Robin through the open market or private transactions without paying an appropriate control premium or offering fair and adequate value to all shareholders.”
Red Robin has been searching for a new strategic direction as visitors dwindle at US shopping malls, where many of the company’s restaurants are located. The company’s stock had dropped more than 50% over the past year before Vintage made its offer. The company recently closed 10 restaurants, and hopes to improve efficiency at existing locations by streamlining the menu and adding headsets for service staff.
Vintage Capital has some experience with restaurant chains, having bought a stake in Papa Murphy’s take-and-bake pizza restaurants before selling it to MTY Food Group for roughly $190 million. The buyout shop typically makes public and private investments in the consumer, aerospace, and manufacturing and defense sectors. And it appears it won’t stop unless it owns Red Robin completely.
Kahn wrote:
“While a proxy fight is not desirable for Vintage or for the company’s other shareholders and could inhibit our ability to participate in any auction process, we feel that the board has left us no other option and we will take all available actions to ensure that the Board acts in the best interests of the shareholders.”
Related read: Roark Capital: Where Ayn Rand meets Arby’s
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