Activist investor Vintage Capital, which holds 1.5 million shares or about 12 percent of Red Robin's stock, has offered to buy the remaining 88 percent of the struggling burger chain. Vintage proposed an all-cash transaction worth $461.4 million.
In a letter to Red Robin, Vintage called on the brand to begin auctioning off the company. Vintage offered a takeover bid with a price of $40 per share. Red Robin’s closing price on June 12 was $25.46. After the letter was released June 13, shares jumped 24.39 percent to $31.67. This time last year, the stock traded over $54.
Vintage’s call to sell the company comes only a week after Red Robin adopted a short-term Shareholder Rights Plan, or a so-called "poison pill" to investors. After meeting with advisers, the burger chain issued the plan to deter investors from “gaining control of Red Robin through the open market,” it said in a statement.
Red Robin responded with a statement. In the response, the company admitted it was surprised by the action Vintage was calling for. The company said it welcomes dialogue with shareholders and “appreciates input toward the goal of enhancing shareholder value.”
Another concern for investors is the search for a permanent replacement of former CEO Denny Marie Post. Post retired in April after joining the company seven years ago. Vintage expressed concerns the company isn’t able to recruit a replacement because of its ongoing sales declines.
“Our sincere hope, as explained to members of the board on a number of occasions, was to work collaboratively to recruit an ‘A+’ operator to accept the CEO role and lead Red Robin back to greatness,” Vintage Capital said in a letter in a filing with the SEC. “It is clear that many such quality candidates are refusing to entertain the opportunity due to a lack of confidence in the board’s leadership and Red Robin’s disastrous operating and market performance.”
In the eyes of Red Robin, talks with Vintage and other shareholders regarding the search for a new CEO have always been open. After speaking with Vintage in April, Red Robin retained The Elliott Group to help find highly qualified candidates, it said.
“In multiple conversations with Vintage, we have expressed our openness to Vintage’s participation in our ongoing search to identify a world-class CEO, and to maintaining a constructive dialogue,” the company added in a statement. “Given our dialogue to date, we were surprised by the content of the letter we received today, as Vintage has not been willing to propose any CEO candidates.”
If no action is taken regarding the sale of Red Robin then Vintage plans on holding a special meeting for shareholders to remove board members and replace them with directors “who will actually act in the best interest of shareholders,” Vintage said in the letter.
Red Robin has struggled in recent years to generate consistent growth, especially over the past few quarters as its dealt with growing labor and traffic issues. For the full fiscal 2018 year, revenues fell 3.5 percent to $1.5 billion, leaving the company with a $6.4 million net income loss.
Same-store sales have remained mostly negative since 2016. Here’s a look at where the brand has tracked in the past two years in regards to comps:
- Q1 2019: –3.3 percent
- Q4 2018: –4.5 percent
- Q3 2018: –3.4 percent
- Q2 2018: –2.6 percent
- Q1 2018: –0.9 percent
- Q4 2017: 2.7 percent
- Q3 2017: –0.1 percent
- Q2 2017: 0.5 percent
- Q1 2017: –1.2 percent
- Q4 2016: –4.3 percent
- Q3 2016: –3.6 percent
- Q2 2016: –3.2 percent
- Q1 2016: –2.6 percent
At the end of May, the burger chain announced the impending closure of 10 underperforming restaurants—seven of which are enclosed mall units. These stores had average-unit volumes of $1.8 million and totaled nearly $1 million in pretax operating losses in the first quarter of fiscal 2019.
“While we do have faith in the intrinsic value of the Red Robin brand, we have very little confidence that the current board will be able to attract a suitable new leader for the company or initiate or seriously pursue a meaningful sales process,” Vintage said in the filing. “If the board wants to show shareholders that it truly recognizes the serious issues facing the company and is interested in maximizing value for shareholders, we request that the board commit publicly to the launching of a broad review of strategic alternatives [including a sale of the company] to run in parallel with the CEO search process."
In its response to Vintage, Red Robin outlined the goals and priorities it will be focusing on to shift the brand back on course. For the rest of 2019, it's committed to executing these strategies along with the search for a new CEO:
- Stabilizing dine-in revenue by reinforcing Red Robin’s compelling Value proposition
- Continuing building To-Go and Catering business
- Improving the Guest experience and recapturing Red Robin’s known-for “Gift of Time” convenience
- Implementing digital platforms and restaurant technology solutions
- Selectively refranchising and reassessing our real estate portfolio