In its latest public complaint from Vintage Capital manager Brian Kahn, the Orlando-based private equity firm chastised Red Robin's leadership in a letter filed with the SEC, after the company's board turned down a formal offer from Vintage to purchase the burger chain for $40 per share, valuing it at some $519 million.
The outcry comes a week after Red Robin's board simultaneously announced the hiring of Paul Murphy as its new president and CEO and that it had turned down Vintage, arguing that the company's current plan to revamp the casual dining chain positions it to produce higher long-term value to shareholders than Vintage's proposal.
Vintage, which already owns a roughly 12% stake in the Colorado-based company, said the developments were "profoundly disappointing" but not "remotely surprising" given the firm's history with the board. Vintage was also apparently upset by the lack of negotiations after the bid, saying it would have potentially raised its price if there had been more communication. Red Robin officially rejected the proposal August 27.
"We were optimistic that we could increase our offer, potentially materially, following due diligence and that were prepared to sign a customary nondisclosure agreement, including a standstill," Kahn wrote in the letter, filed Tuesday. "If there was any doubt from the timing of the August 27 conversation that you had zero interest in meaningful engagement, the content of our discussion made clear that you were simply 'checking the box' at the urging of your advisors."
Red Robin responded Wednesday by maintaining that it fulfilled its fiduciary obligations to shareholders and reiterated that it was ultimately undervalued by Vintage. The firm's proposal marked a 57% premium to the company's stock price before the offer was made public. Red Robin's stock price went almost completely unaffected by the drama Wednesday, closing up about 1% at $34.79 per share.
"The Red Robin board and management team are focused on executing the company's strategic plan to restore growth and improve profitability," the company said in a statement. "The board appreciates input from all shareholders toward our shared goal of enhancing value and will continue to review the company’s strategic priorities against all potential opportunities to create shareholder value."
Vintage also wasn't particularly happy with the compensation package afforded to Murphy, who is set to make $900,000 annually (excluding bonuses) and will have a staggering $9 million severance package if the company is acquired or there's a change in majority on the board of directors.
"We look forward to the opportunity to meet with Mr. Murphy and discuss his vision for the company, and while it remains to be seen whether Mr. Murphy will be an A+ chief executive, the board was more than happy to reward him with an A+ compensation package that does not align with creating stockholder value," Kahn wrote. "Specifically, the compensation package approved by the board shifts considerable value from stockholders to the new CEO regardless of whether he succeeds or fails in his 'turnaround' efforts."
Red Robin took pains to defend Murphy, who previously was executive chairman of Noodles & Co. and before that served as CEO of Del Taco Restaurants. He will succeed interim Red Robin CEO Pattye Moore, effective October 3.
"Mr. Murphy is a proven restaurant industry executive with more than 30 years of operational, brand-positioning and turnaround expertise, as well as an extensive track record of creating significant shareholder value," Red Robin's statement said. "We are excited about the company's potential to improve customer experience, significantly improve cash flow and increase profitability."
Kahn concluded the letter by pledging to investigate the board's recent actions, basically threatening its own form of a financial review. "The board will be called to answer for its campaign of delay, obfuscation and fiduciary duty breach," Kahn wrote.
This isn't Vintage's first dust-up with a potential portfolio company. In June 2018, the firm agreed to acquire Rent-A-Center in a deal that valued the business at some $1.4 billion. But it was unable to close the transaction within the six-month time frame and failed to give written notice that it needed a three-month extension, which was required by the contract. Rent-A-Center subsequently called off the deal, Vintage sued, and a judge ultimately ruled against the firm.
Featured image via bhofack2/iStock/Getty Images Plus