A special meeting of shareholders appears to have ended the proposed merger of J. Alexander’s and Ninety Nine Restaurant & Pub. Shareholders voted down the deal, the company announced Thursday, saying it “expects that the merger agreement will be terminated.”
The deal was first shared in August when J. Alexander’s Holding’s, Inc., the parent company of J. Alexander’s, Redlands Grill, Stoney River Steakhouse and Grill, and Lyndhurst Grill, said it would acquire the chain from Fidelity National Financial Ventures LLC in an all-stock deal valued at $199 million. Some shareholders believed the deal benefitted Fidelity’s interests, since J. Alexander’s planned to pay for the merger with a newly created class of stock, and Fidelity subsidiaries Fidelity Newport Holdings and Fidelity National Financial Ventures LLC would get more than 52 percent of J. Alexander’s stock.
The 106-unit brand would have given the company a New England footprint, an area its current brands don’t have a presence in. J. Alexander’s portfolio features 44 locations in the South and Midwest, including 19 J. Alexander’s, 12 Redlands, 12 Stoney Rivers, and one Lyndhurst Grill location.
“While we are disappointed that shareholders did not approve this transaction, we are confident in our overall strategy, our strong culture and our ability to deliver value to shareholders. Looking forward, we remain focused on growing our business, strengthening our competitive position and enhancing our current restaurant concepts,” president and CEO Lonnie J. Stout said in a statement.
Despite its best efforts to persuade shareholders, J. Alexander’s couldn’t shake the influence of activist investor Marathon Partners. The company wants to push for a sale or some form of strategic alternative. On January 31, Marathon took issue with J. Alexander’s adjournment of the special meeting of shareholders.
“With this latest maneuver, the Board of J. Alexander's continues to prioritize their self-interests above those of the shareholders,” Mario Cibelli, managing member of Marathon Partners, said in a statement. “We continue to be exasperated by these thinly-veiled efforts to coerce approval of a transaction that is not in the best interests of shareholders and was rejected by the two leading independent proxy advisory firms, ISS and Glass Lewis.”
Proxy advisory firms Institutional Shareholder Services and Glass Lewis recommended against the merger and J. Alexander’s delayed the shareholder vote earlier in the week.
At the heart of Marathon’s issue with the proposed transaction was this: “As we have stated in the past, the company is not offering a premium to shareholders to compensate them for relinquishing control,” Cibelli said. “… We also urge the J. Alexander's Board to immediately cease any and all manipulations of this vote and truthfully acknowledge that this deal was designed at the outset to benefit the interests of Fidelity National Financial, Inc. and related entities, above all else. Conflicted insiders and favors for others have come to define this transaction. Any fiduciary worth his or her salt can plainly see that there are far simpler and attractive options for creating shareholder value for J. Alexander's shareholders."
In mid-January, J. Alexander’s issued a statement urging shareholders to approve the deal on the notion that it would help the company grow.
“We look forward to completing this accretive merger and capitalizing on the significant opportunities it provides to drive long-term, sustainable value for J. Alexander’s shareholders,” Stout said at the time.
- The company gave these reasons for approval:
- The transaction is expected to be accretive to J. Alexander’s earnings per share.
- The acquisition presents opportunities for synergies and management estimates that potential synergies could have an annual positive impact on pre-tax income of $1.5 million to $2 million.
- The combination with 99 Restaurants will help J. Alexander’s achieve more rapid growth and increase the scale of operations.
Cannae Holdings, Inc. is the majority owner and operator of 99 Restaurants. Preliminary unaudited sales results for fiscal 2017 showed net revenue of about $311.2 million, an increase of $7.2 million, over the prior-year period.
Preliminary unaudited sales for J. Alexander’s showed average weekly same store sales increases of 2.3 percent for J. Alexander’s Restaurants/Grills. Stoney River saw same-store sales growth of 7.3 percent.
Stout said J. Alexander’s would continue to expand with its current portfolio, despite the failed merger.
“We are also enthusiastic about executing on our organic growth strategies within our current concepts, including an additional J. Alexander’s restaurant that will open in King of Prussia, Pennsylvania, and a new Stoney River restaurant in Troy, Michigan, both of which will open later this year,” he said.