HOUSTON, May 25, 2017 /PRNewswire/ -- JCP Investment
Management, LLC, together with its affiliates and the other
participants in its solicitation (collectively, "JCP" or "we"),
collectively one of the largest stockholders of Fiesta Restaurant
Group, Inc. ("Fiesta" or the "Company") (NASDAQ: FRGI), with
aggregate ownership of approximately 9.0% of the Company's
outstanding shares, has deemed it necessary to address Fiesta's
May 23, 2017 presentation in
connection with the annual meeting to be held on June 7, 2017. JCP believes that the Company's
presentation contains a number of false and misleading statements
with respect to Fiesta and JCP that must be addressed.
FIESTA FICTION #1: The Company's Board of Directors (the
"Board") has proactively taken steps to address Fiesta's
underperformance.
FACTS: The Board has taken defensive and
reactionary measures after our public
involvement.
The indisputable truth is that each of the following occurred
after our public involvement:
- CEO was replaced – but given the 5-month gap without a
permanent CEO, it is evident the Board was not prepared with a
succession plan
-
- Notably, new CEO Rich Stockinger
was not added to the Board upon his appointment as CEO – but he was
added after JCP questioned his lack of addition during settlement
discussions
- 3 new directors with restaurant industry experience were added
to the Board (including the CEO) – but no non-executive director
has stepped down from the Board
- Fiesta's "Strategic Renewal Plan" was released
- The first purchase of Fiesta shares by an incumbent director
was made
Also occurring after our involvement have been a number of
personal attacks with untrue statements that do not warrant
repeating, which we believe demonstrates the lengths the incumbents
will go to continue their pattern of entrenchment.
While Fiesta has attempted to portray JCP as being unreasonable
in settlement discussions, the simple truth is that JCP could not
in good faith enter into any agreement that served to further
entrench the incumbent directors – which is exactly what JCP feared
a 2-year standstill and no incumbent director coming off the Board
would do.
JCP is committed to seeking the election of direct stockholder
representatives with restaurant industry experience who will
improve the Company's corporate governance practices and represent
the best interests of all stockholders.
FIESTA FICTION #2: The Board does not believe
James C. Pappas will serve
stockholders well.
FACTS: The Board offered to add Mr. Pappas to the
Board – indicating a belief that Mr. Pappas' addition to the Board
would benefit stockholders. As shown in the table below, Mr. Pappas
has a demonstrable track record of creating stockholder value after
becoming publicly involved with a company.
TICKER
|
NAME
|
IRR
|
%
RETURN
|
PERIOD(1)
(MOS)
|
ENTERPRISE
VALUE
|
JAX
|
J. Alexander's
Corporation
|
256%
|
112%
|
7
|
$92m
|
PTRY
|
The Pantry,
Inc.
|
210%
|
138%
|
9
|
$1.7b
|
MRFD
|
Morgan's Foods,
Inc.
|
120%
|
488%
|
27
|
$48m
|
CWST
|
Casella Waste
Systems, Inc.
|
54%
|
144%
|
25
|
$1.1b
|
AMRE
|
AmREIT,
Inc.
|
52%
|
21%
|
5
|
$764m
|
CST
|
CST Brands,
Inc.
|
39%
|
25%
|
8
|
$5.2b
|
VVI
|
Viad Corp.
|
25%
|
61%
|
25
|
$1.1b
|
HTM
|
US Geothermal
Inc.
|
14%
|
18%
|
15
|
$170m
|
TLF
|
Tandy Leather
Factory, Inc.
|
11%
|
11%
|
12
|
$67m
|
JMBA
|
Jamba,
Inc.
|
-28%
|
-54%
|
28
|
$107m
|
AVERAGE
|
|
75%
|
96%
|
16
|
$1.0b
|
(1) Performance
calculated from date of public involvement or joining board, as
applicable,
until May 23, 2017 (unless company was acquired).
|
Although Fiesta would like to harp on Jamba, Inc., its
performance to date is clearly the outlier for JCP's portfolio
companies, and Mr. Pappas' efforts to drive stockholder value
remain ongoing. We find it ironic that Fiesta has emphasized the
fact that Jamba made a notification of late filing ("NT Filing")
with the SEC considering that since Fiesta director (and former
Chairman) Jack A. Smith became a
director and chairman of the audit committee of Omagine, Inc. in
September 2015, it has made 6 such
NT Filings and is down over 83%.1
FIESTA FICTION #3: Mr. Pappas' interests are not aligned
with stockholders, and he does not have the time to devote to
Fiesta.
FACTS: Fiesta represents JCP's largest investment in
terms of invested capital. JCP, an investment firm representing
more than 60 clients (from university endowments, pension funds,
family offices and other institutions) across the capital
structure, believes the investment opportunity at Fiesta is
significant. Like all of Fiesta's other stockholders, we will only
be able to achieve a return on our investment upon the appreciation
in value of Fiesta's stock. With Fiesta representing JCP's largest
investment, Mr. Pappas has an added incentive to dedicate his
maximum time and effort to maximizing value for Fiesta's
stockholders.
Fiesta's strategy to question Mr. Pappas' interest alignment
with stockholders and his time availability is quite interesting
considering:
- Prior to recently appointed director Paul E. Twohig's purchase in March 2017, no incumbent director had ever
purchased a single Fiesta share2
-
- The lack of personal investment by the incumbents raises
questions as to their interest alignment with stockholders and
magnifies the need for direct stockholder representation on the
Board
- The aggregate number of shares beneficially owned by the
incumbent directors has drastically declined since the
completion of the Company's spin-off in May
2012
-
- Brian P. Friedman's beneficial
ownership alone has declined by over 83% (even including
recent purchases by Leucadia)
- Barry J. Alperin and Mr.
Friedman, the two Jefferies-affiliated directors we are opposing,
both serve on more boards of directors than Mr. Pappas
-
- Mr. Pappas serves on 3 boards while Messrs. Alperin and
Friedman serve on at least 4 and 5 boards, respectively,
while Mr. Friedman also serves as President of a multi-billion
dollar holding company
Stockholders should ask themselves who appears to have a greater
incentive and capacity to represent their best interests. Also, if
the Board really believes that Mr. Pappas' interests are not
aligned with stockholders, then why was he offered a Board
seat?
FIESTA FICTION #4: John B.
Morlock has a consistent history of destroying stockholder
value.
FACTS: Mr. Morlock is a talented restaurant operator
that will prove invaluable in the implementation and execution of a
precise plan to drive stockholder value.
During Mr. Morlock's tenure with Potbelly Corporation, the
restaurant experienced exponential growth from a local sandwich
shop to a publicly traded company with more than 400 locations.
|
2002
|
2016
|
Increase
|
CAGR
|
Revenue
|
~$24,000
|
$407,131
|
17.0x
|
19%
|
Adjusted
EBITDA
|
~$2,000
|
$48,000
|
24.0x
|
22%
|
Stores
|
16
|
411
|
25.7x
|
22%
|
$ in
thousands
|
|
|
|
|
At the time of his departure, Potbelly's Chairman and CEO
Aylwin Lewis had this to say about
Mr. Morlock in a company-wide email:
"I am sad to convey that John
Morlock SVP, Ops Growth has informed me that after 14 years
with the Potbelly Nation he will be moving on to another
opportunity. Words alone can't express how grateful I am for the
multitude of contributions John has made to operating our shops.
John joined Potbelly in December of 2002 as SVP, Chief Operating
Officer reporting to Bryant Keil. He
started when the company had just 18 shops. His previous work at
SpinCycle, Einstein's, Boston Chicken and Blockbuster prepared him
well! He is one of the three key people who have really
driven this brand over the years - Bryant, Carl and John.
I have personally appreciated his business knowledge and his
partnership during our 'road warrior' years. When I first got here
I leaned on him a lot - he's been like a brother. We spent a lot of
time on the road and talked every day. His support of the culture
has been outstanding. Even last year when he asked to step back, he
continued to help drive the growth strategy in domestic
franchising.
John will forever be a big player in the history books of
Potbelly. He will be inducted into the Potbelly Hall of
Fame."
While Fiesta would like stockholders to think that Mr. Morlock
is responsible for the destruction of companies, the truth is he is
frequently brought aboard distressed companies facing extreme
challenges to implement turnaround plans. For instance, at Spin
Cycle, Inc., Mr. Morlock was hired for a 2.5 year turnaround plan
but completed the process in 1.5 years in a manner benefiting
stockholders. John H. Muehlstein, a
founding investor in Spin Cycle and Clubhouse International, had
this to say with respect to Mr. Morlock's involvement at both
companies:
"After both concepts [Spin Cycle and Clubhouse] ran into
serious operating difficulties, I introduced John to the Boards of
both businesses in an effort to implement turnaround plans. John
was hired by both Boards to replace existing failed management. One
of the Board members of Spin Cycle who hired John was a
representative of CS First Boston, the major bondholder. In both
situations, John was hired long after the concepts had begun to
collapse."
Stockholders will greatly benefit from the addition of Mr.
Morlock to the Board.
FIESTA FICTION #5: Fiesta has the right Board to drive
stockholder value.
FACTS: Fiesta's incumbent directors have presided
over prolonged underperformance and must be held accountable for
the massive destruction of value that has occurred under their
watch.
Not only has Fiesta materially underperformed its peers and
relevant indices over the past 5 years, Fiesta has produced
negative total shareholder returns over the last 1, 2 and
3-year periods.
|
|
Share Price
Performance (1)
|
|
|
1-Year
|
2-Year
|
3-Year
|
5-Year
|
Buffalo Wild Wings
Inc
|
|
11%
|
-3%
|
9%
|
85%
|
Popeyes Louisiana
Kitchen Inc
|
|
52%
|
40%
|
116%
|
350%
|
Panera Bread
Co
|
|
51%
|
68%
|
104%
|
119%
|
El Pollo Loco
Holdings Inc
|
|
28%
|
-39%
|
-
|
-
|
|
|
|
|
|
|
Average of Most
Similar Competitors (2)
|
36%
|
16%
|
76%
|
185%
|
|
|
|
|
|
|
S&P 500
Index
|
|
17%
|
12%
|
27%
|
84%
|
|
|
|
|
|
|
Russell 2000
Restaurants Index
|
|
15%
|
4%
|
34%
|
117%
|
|
|
|
|
|
|
2016 FRGI Proxy Group
(3)
|
|
11%
|
0%
|
27%
|
143%
|
|
|
|
|
|
|
Fiesta Restaurant
Group Inc
|
|
-3%
|
-53%
|
-37%
|
98%
|
|
|
|
|
|
|
|
|
|
|
|
|
Underperformance vs.
Average of Most Similar Competitors
|
-38%
|
-69%
|
-113%
|
-86%
|
|
|
|
|
|
|
Underperformance vs.
Russell 2000 Restaurants Index
|
-18%
|
-57%
|
-71%
|
-19%
|
|
|
|
|
|
|
Underperformance
vs. 2016 FRGI Proxy Group
|
-13%
|
-53%
|
-64%
|
-45%
|
|
|
|
|
|
|
Source: Bloomberg
as of May 19, 2017.
|
1. Figures are
adjusted for dividends
|
2. BWLD, PLKI,
PNRA, LOCO. PNRA's acquisition by JAB Holdings
announced April 5, 2017.
|
3. Used 2016 Proxy
Group as FRGI eliminated the Proxy Group in 2017.
|
The same incumbent directors that approved the squandering of
more than $70 million expanding Pollo
Tropical into Texas (while
neglecting the core Florida
market) somehow want stockholders to believe that they are the
right choice to enhance stockholder value. While Fiesta has
attempted to frame its total shareholder return in a positive light
by stopping the calculation in 2015 and excluding certain
peers, we are confident that our fellow stockholders see through
this ploy.
FIESTA FICTION #6: Fiesta is committed to strong
corporate governance practices.
FACTS: Fiesta maintains a classified Board structure
and many other stockholder unfriendly provisions that are
inconsistent with corporate governance best practices that serve to
entrench the incumbents, including:
- Stockholders cannot act by written consent;
- Stockholders cannot call special meetings;
- Supermajority voting requirement to amend organizational
documents;3 and
- Directors may only be removed for cause by a supermajority
vote.
While Fiesta claims to have a focus on Board refreshment, it
should be noted that each of the Board's unilateral appointments
occurred since the end of February
2017, after our public involvement. Notably, no
non-executive director has stepped down and none of the recently
appointed directors are up for election at the Annual Meeting.
FIESTA STOCKHOLDERS – DO NOT BE MISLED BY THE
COMPANY'S FALSE AND MISLEADING STATEMENTS
It is evident that our campaign has inspired reactionary changes
at Fiesta, but there is more work to be done. If elected, our
nominees will bring increased stockholder oversight into the
boardroom to ensure increased accountability and that decisions are
made with stockholders' best interests in mind.
If elected, our nominees eagerly look forward to working with
the new CEO and the other members of the Board to deliver
stockholder value, as JCP has repeatedly done with its portfolio
companies.
We encourage stockholders to visit our website at
www.FixFiesta.com to review our detailed investor presentation.
The time for accountability is now. We urge stockholders to send
a clear message to the Board that Fiesta's continued
underperformance and pattern of entrenchment will not be tolerated
by voting the GOLD proxy to elect our highly qualified
candidates John B. Morlock and
James C. Pappas.
VOTE THE GOLD PROXY CARD TO ELECT JOHN B.
MORLOCK AND JAMES C. PAPPAS TODAY
If you have any questions, or require
assistance with your vote, please contact InvestorCom, toll-free at
(877) 972-0090, call direct at (203) 972-9300
About JCP Investment Management:
JCP Investment Management, LLC is an investment firm
headquartered in Houston, TX that
engages in value-based investing across the capital structure.
JCP follows an opportunistic approach to investing across
different equity, credit and distressed securities largely in
North America.
Investor Contacts:
James C. Pappas
JCP Investment Management, LLC
(713) 333-5540
John Glenn Grau
InvestorCom
(203) 972-9300
Media Contact:
Gotham Communications
Bill Douglass, (646) 504-0890
bill@gothamcomm.com
1 Calculated from August 31,
2015 (day prior to Mr. Smith joining Omagine) to
May 24, 2017.
2 JCP acknowledges that Leucadia National
Corporation, a multi-billion dollar holding company of which
director Brian P. Friedman serves as
President and a director, purchased shares one week before Mr.
Twohig.
3 Including all Bylaw provisions and stockholder
unfriendly provisions in the Charter.
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/jcp-sets-the-record-straight-on-fiesta-restaurant-groups-misleading-presentation-300463715.html
SOURCE JCP Investment Management, LLC