Luby's Wins Ramius Fight, with a caveat

A battle for the future of Luby's Inc. is finally over and the cafeteria operator's management came out on top, with a small caveat.

After agreeing to a condition, Luby’s management-backed director candidates at a Tuesday annual meeting beat out nominees put forward by dissident activist hedge fund Ramius Capital Group LLC.

The activist investor group launched a proxy contest on Oct. 17 to nominate four director candidates to Luby's board at the company's annual meeting, which took place today, Jan. 15. But their success can be attributed, in part, to a decision by Luby’s largest shareholders and the operators of the business, Chris and his brother Harris Pappas, to support a measure de-staggering the 10-person board.

The dissident investors were disappointed but noted that a majority of outside investors, not including shares owned by the Pappas family, appears to have voted to back their candidates. “Although we are disappointed that our nominees were not elected to the board of Luby’s, we believe the independent shareholders of Luby's have sent a strong message,” said Ramius partner Jeffrey C. Smith in a statement. “The preliminary indications show that a majority of the independent shareholders of Luby’s voted in favor of changes to the composition of the Luby’s board. “If you exclude the Pappases’ share ownership above the 15% poison pill threshold from the vote, it appears that a majority of shares voting would have supported change to the Luby’s board of directors.”

Luby's is an Houston, Texas-based operator of 130 cafeteria-style restaurants in Texas.
A key battle focused on the capabilities of each slate’s candidates and whether the Pappas brothers should have been permitted to have an exemption from Luby's poison pill, allowing them to own up to 28% of the company's shares, instead of the 15% allowed for other shareholders.
The restaurant chain on Jan. 2 issued a proxy to investors lashing out at Ramius' nominees, criticizing them for their limited experience in the restaurant industry or how their background has "little relevance to Luby's from-scratch cooking and casual dining." One nominee, Luby's wrote, is a Ramius director "for hire," has no restaurant industry experience and was recently rejected by shareholders of another publicly traded company.
The activists have taken issue with the company's granting Christopher Pappas, Luby's president, and Harris Pappas, his brother, an exemption from Luby's poison pill. 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. Ramius has also criticized how, in addition to Luby's, the Pappas brothers operate a private business, which means they have less time to focus on the publicly held Luby's.
Proxy Governance, a shareholder advisory service, recommended that investors vote for three of the four candidates on the Ramius slate. -- Ron Orol