COLUMBUS, Ohio, March 15, 2017 /PRNewswire/ --
Gentlemen:
As the largest shareholder of Bravo Brio Restaurant Group, Inc.
(Nasdaq: BBRG) ("Bravo Brio" or the "Company"), with an ownership
position of nearly 15%, we are extremely disappointed with the
Company's weak fourth quarter and full year 2016 results including,
but certainly not limited to, the following:
- 2016 revenues were $410.3 million
near the bottom of management's downward revised guidance and a
decrease of $13.7 million, or 3.2%,
compared to 2015;
- Negative comparable restaurant sales growth of 5.5% in the
fourth quarter, continuing an unbroken trend of negative growth
that began in 2013 – a dubious distinction which appears to be
unrivaled among public restaurant companies; and
- Declining restaurant level profitability as evidenced by a
$24.4 million increase in restaurant
level operating costs since 2012 to go along with slightly higher
2016 revenues (despite 14 additional restaurants) resulting in a
decline in restaurant level operating margins to 12.7% in 2016 from
18.2% in 2012, highlighting management's ineffectiveness or
unwillingness to curb costs in a declining traffic
environment.
We believe that the Company's latest results demonstrate that
the current Board of Directors and management team have not made
the proper strategic and operational decisions to unlock value for
all shareholders. Indeed, hope that a new year would bring
improved financial performance was frustrated when management noted
on February 28 that comparable
restaurant sales to-date had decreased by almost 2%.
The Company's habitual underperformance has not gone
unnoticed. The Company's stock price has declined by more
than 75% during the period commencing with the Company's IPO, when
the closing market price per share on the first day of trading was
$15.95, and ending on the trading day
prior to the filing of our Schedule 13D. In fact, Bravo
Brio's stock has significantly underperformed over the past one,
three and five-year periods when compared to its peer group and
broader indices.
We attribute the market's substantial discount to the Company's
misguided strategy, poor oversight by the Board of Directors and
ineffective management. We have lost confidence that the
current Board of Directors and executive team will be able to
unilaterally effect a turnaround and deliver the value that Bravo
Brio shareholders deserve.
We believe that the Board of Directors has continued to compound
numerous mistakes that the Company has made over the years.
For example, effective December 28,
2015, the Company appointed Mr. Brian O'Malley as Chief Executive Officer and a
director. Mr. O'Malley was formerly President (since
August 2014) and Chief Operating
Officer (since October 2010). In our view, many of Bravo
Brio's numerous failings are operational in nature, and appointing
the former officer partially responsible for these issues as Chief
Executive Officer and a director ensures more of the same. We
believe the Board of Directors has not offered any meaningful
change to correct the serious issues negatively impacting
shareholder value, and this appointment reflects the continued
exercise of poor judgment by the Board of Directors in our
opinion.
In addition, the Board of Directors has not improved the
corporate governance of the Company in any way since its IPO.
Of particular concern, the Company's governing documents provide
for the following:
- a classified board structure, rather than the annual election
of all directors;
- plurality voting in director elections, rather than a majority
voting standard; and
- a restriction on the ability of shareholders to call a special
meeting except by 50% of the shareholder voting power, rather than
a more meaningful threshold such as 15%.
We also note that Bravo Brio shareholders are currently
disenfranchised from expressing their views on executive
compensation packages on an annual basis because the Company holds
a say-on-pay vote with respect to its executive
compensation every three years, whereas 82% of Russell 3000 companies hold a say-on-pay vote
every year, according to a recent survey published by Willis Towers Watson. The Board of
Directors recommended to shareholders that three years was the
appropriate frequency to hold the say-on-pay vote, in spite of the
fact that compensation packages and the Company's performance can
change from year to year. We regard this as one example of
the many actions taken by the Board of Directors that have
constrained the ability of the Company's shareholders to exercise
their ownership rights, particularly as it relates to executive
performance and related compensation.
The Company's latest action, delaying its 2017 Annual Meeting of
Shareholders until December 14, 2017, instead of holding it in
the first week of May as it has for the past five years, also
appears designed to thwart the efforts of the shareholders to hold
the Board of Directors accountable for the Company's poor
performance. We note that the Board of Directors took this
action on the very next day after negotiations terminated between
us and the Company regarding Board representation. We believe
that this delay of the annual meeting does a serious disservice to
the Company's shareholders who deserve the opportunity to voice,
without delay, their frustration at the strategic missteps of the
Company's leadership. By denying shareholders their right to
elect directors on the same timetable as prior years, we believe
the Company is simply perpetuating the pattern of self-serving
actions and value destruction that have characterized Bravo Brio's
recent history. The incumbent directors, including Mr.
O'Malley whose term is set to expire at the 2017 Annual Meeting of
Shareholders, should not prioritize self-preservation over the
rights of shareholders.
Furthermore, the Company's excuse that it has delayed the
meeting in order to give shareholders the opportunity to evaluate
the "results" of the Company's process with respect to alternatives
appears disingenuous. The only thing that changed before the
Company's announcement of this process was our public
involvement. The directors demonstrated no urgency to improve
performance until confronted by us and the prospect of shareholder
accountability. Tellingly, only then did they commence "the
process of engaging investment bankers." Even then, the
Company reported that it "does not intend to provide updates"
regarding the process, denying shareholders information relevant to
their investment in the Company. In our view, the Company's
vague rationale and lack of transparency belie its stated
intentions and suggest a desire to retain control without
meaningful change.
Importantly, we are extremely concerned that management, in its
need to show "results" before December, could make decisions that
will ultimately prove detrimental to the Company and to all
shareholders. This is particularly concerning because we have
come to believe that the Board of Directors lacks the independent
leadership necessary to effectively structure and negotiate a deal
that creates shareholder value. Our experience with the Board
is illustrative of their lack of engagement.
In late January, our director nominees flew to Ohio to be considered by the Company for
positions on the Board of Directors. Not a single director
serving on the Nominating and Corporate Governance Committee
attended the meetings, either in person or by telephone.
Instead, the Chief Executive Officer and Chief Financial Officer,
together with one independent director, conducted the
meetings. This confirmed our fear that the Board of Directors
has abdicated its responsibilities to the shareholders and has
ceded control to the management team. The management team
should answer to the Board of Directors, but this Board appears to
have it exactly backwards.
Given the Company's recent performance, a fulsome evaluation of
strategic alternatives is certainly warranted. We have
serious doubts, however, that the current Board of Directors and
management team have the appropriate perspective, expertise, and
motivation to truly enhance shareholder value. Moreover,
rushing this process without proper independent oversight and
requisite expertise could cause shareholders yet further value
destruction.
We call on the Board of Directors to provide greater
transparency regarding the exploration of strategic alternatives,
as well as more accountability to the Company's shareholders with
respect to enhancing shareholder value, corporate governance
practices and strategic direction.
Investor Contacts:
William P. Fiske, Georgeson Inc.:
+1 (212) 440-9128 or BFiske@georgeson.com
Rajeev Kumar, Georgeson Inc.: +1
(212) 440-9812 or RKumar@georgeson.com
About TAC Capital LLC
Headquartered in College Station,
Texas, TAC Capital LLC is a privately owned investment firm
affiliated with The Adam Corporation/Group, a privately owned
holding company. Since its inception in 1969, The Adam
Corporation/Group has acquired and built companies in such diverse
industries as cable television, general contracting, real estate
development, hospitality, and banking and financial services,
including First American Bank, SSB, the largest privately held bank
in Texas prior to its sale to
Citibank in 2005.
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SOURCE TAC Capital LLC