Luby's, Ramius continue to spar

Dissident activist investors Ramius Capital Group LLC and Luby's Inc. intensified Thursday their dispute over the future of the Texas-based cafeteria-style restaurant operator.
In the latest series of letters to shareholders, Luby’s argues that Ramius’ nominees have fast-food restaurant experience that isn’t relevant to Luby’s “casual dining concept.” The company also lashed out at Ramius, arguing that it has “little to no experience in the restaurant business.”
The Luby’s effort was in response to a Ramius letter arguing that its candidates are better qualified to represent the best interests of Luby’s shareholders, in part, because they have 73 combined years of restaurant industry experience and “a 50-year combined track record in corporate finance.”
The hedge fund managers plan to nominate Stephen Farrar, a senior vice president at Wendy's International Inc.; William Fox, a consultant and formerly a chairman at an investment fund; Brian Grube, former chief executive of Fresh Enterprises Inc.'s Baja Fresh Mexican Grill; and Matthew Pannek, who served as CEO of Magic Brands LLC and Fuddruckers Inc. between May 2006 and August 2007.
Ramius also complains about Luby’s decision last month to grant Christopher Pappas, Luby’s president, and Harris Pappas, his brother, an exemption from Luby’s poison pill, allowing them to own a larger percentage of the company’s shares, instead of the 15% allowed for each other shareholder. While the Pappas brothers argue that increasing their personal financial stake in the company demonstrates their commitment to making sure the company’s share price improves, Ramius is concerned that the greater ownership will mean more votes for management-backed directors (and less for them) at the contentious meeting.
Another point of contention: The Ramius group also expressed concern about the privately owned Pappas restaurant entity owned by the two brothers. “As shareholders of Luby's, we are extremely concerned that the time commitment associated with running the Pappas restaurant entities, which are privately owned by you and your brother Harris, is preventing Luby's management from taking the steps necessary to unlock value at Luby's,” the Ramius group wrote. “While we are sympathetic to the difficulty of managing both businesses, the shareholders of Luby's are not interested in the Pappas restaurant chain.”
But Luby’s contends that the Pappas brothers’ stake in the business means they are committed to improving share value. “No one has more at stake in Luby’s than Chris and Harris Pappas, and your board is extremely pleased with the company’s progress under their leadership and with their continued commitment to Luby’s,” Luby’s Oct. 31 filing reported. — Ron Orol

Ron Orol is a Washington-based reporter for The Deal and author of Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World.