Red Robin Results

[Parsad]

Red Robin reported its 2nd Q results.  They are making good progress under the guidance of Spotlight Advisors and the Clinton Group.  It looks like the company's focus is to pay down debt, buy back shares and be more cautious in its expansion plans.  They are embarking on a progressive advertising campaign as well to restore same store sales. 

 

One interesting note, which I'm just wondering if it has anything to do with Sardar's 6% 13-G filing, but they've enacted a poison pill to protect from an unwanted takeover.  Cheers!

 

http://finance.yahoo.com/news/Red-Robin-Gourmet-Burgers-bw-2990535883.html?x=0&.v=1

 

The Company’s board of directors also voted in favor of adopting a shareholder rights plan to protect stockholders from coercive or otherwise unfair takeover tactics. The board determined, with the assistance of its legal and financial advisors, that a shareholder rights plan will afford stockholders appropriate protections and allow the board time to fully execute its fiduciary obligations in a thoughtful and measured manner.

 

 

Cheers!

[Guest Bronco]

Are these jabronies protecting shareholders or themselves?  Perhaps some of these board members also sit on the board of Fremont.

[Parsad]

Probably both!  ;D  Cheers!

[shalab]

I wouldnt blame RRGB folks - if you think of Biglari as a person that is out there to steal your business, throw you out of your job and whose integrity you dont trust - you do what FMMH and RRGB did.

 

 

[Parsad]

I think FMMH went way above and beyond what was required.  Using a Senator to legislate and install you as a permanent dictator within a corporation is as unethical as you get.  The only thing worse would be embezzlement.  Cheers!

[Parsad]

Details of the poison pill:

 

http://www.sec.gov/Archives/edgar/data/1171759/000110465910044068/a10-15720_18k.htm

 

Cheers!

[ragnarisapirate]

What are the board members thoughts of the poison pill?

 

I personally dislike it; as I do with most poison pills. I just think that they are in bad taste. While I hate Sardar's compensation package, I wouldn't care a bit if he took over RRGB... and this is coming form a guy that owns significantly more RRGB than BH.

[Myth465]

Its a necessary evil, why should Management give away the company to a corporate raider whose primary focus is taking 25% of their future profits for himself personally?

 

If I was CEO and couldnt afford to buy a huge chuck of the company, but had been adding value over the years its what I would do.

[RRJ]

Definitely a reaction to the 13G.  I can picture the heated call to corporate counsel and subsequent fire drill to get the plan in place.  Law firm charged double for the quick reaction time I bet.  My law school professor told me in M&A class that he had a rights plan he could get enacted in 24 hours if a company wanted, but they'd pay a high premium for that quick a reaction -- requires moving several lawyers at once from other deals is one reason-- but mainly because the firm can charge that much in those circumstances so it will. 

 

Typical flip over / flip in rights plan.  Attempts to makes acquisition costs too expensive to be done through any method other than a negotiated deal.  This forces a conversation, and thereby buys time, usually resulting in better deals for shareholders to get board approval to waive the plan attributes. It'll work too.  Sorry Sardar. 

 

With corporate cash balances increasing to high levels, I've been wondering whether we might see a revival in hostile takeovers like in the 1980s, and a concomitant increase in poison pills and classified / dead hand board provisions.  I think it's likely.  Gordon Gecko redux in real life, along with the movie sequel?  Sardar Biglari certainly is doing his part to revive the hostile takeover. 

 

Good summary of current state of hostiles and poison pills in US and foreign firms is here: 

http://www.bnet.com/article/what-is-a-poison-pill/215585

 

The tension between shareholder rights and board's ability to defend is always in flux.  Sardar's too low hostile bids are actually a good example of why poison pills are sometimes helpful to shareholders (the exception that proves the rule, perhaps?).  If hostiles become more common for small cap companies, we might start to see the pendulum swing more in favor of the board's ability to defend against hostile takeovers.  Delaware case law on this is incredibly fact specific and nuanced, and often inconsistent depending on the Chancery judge and business atmosphere at the time. 

 

One intersting side note:  Other states are slowly working to provide some variance from the Delaware model by revising their corporate codes to be more board friendly, while others work to remain more shareholder friendly than Delaware.  To date, there has been only a little headway made into taking corporations away from being headquartered in Delaware, but that is changing a bit over time.  Delaware is charging higher filing fees, increasing franchise taxes that are paid every year based on net assets or number of shares outstanding -- things that could slowly kill the golden goose.  They are still by far the hegemon in incorporations, but that could erode a bit over time.  Not so much that it'll hurt them I wouldn't think.  Talk about a durable and wide moat -- Delaware's got one there! 

 

 

 

 

 

 

 

 

[Junto]

With corporate cash balances increasing to high levels, I've been wondering whether we might see a revival in hostile takeovers like in the 1980s, and a concomitant increase in poison pills and classified / dead hand board provisions.  I think it's likely.  Gordon Gecko redux in real life, along with the movie sequel?  Sardar Biglari certainly is doing his part to revive the hostile takeover. 

 

I have purchased a little KKR recently because of a similar reasoning and a sum of parts valuation on the firm.

[bargainman]

The other thing about his compensation plan is that it may make it tougher for him to make acquisitions in the future.  Especially the ones that require activist style proxy battles.  He won't be able to take the high ground as he has in the past any more.  His compensation plan will be an easy target for incumbent management to target in their arguments.  IMO not only has he diminished the future book value growth by taking it for himself, but he's diminished it by reducing his ability to win future proxy battles.