Explains the Harm of JCP’s 11th Hour
Cookie-Cutter ‘Plan’
Refutes Baseless Allegations Regarding its
Engaged and Highly Qualified Board
Highlights Patterns of Shareholder Value
Destruction by James Pappas and John Morlock
Reaffirms that Fiesta Board Took Careful and
Deliberate Action to Effectuate Change Before the Pappas Group
Surfaced
Recommends Shareholders Vote FOR the Company’s
Highly Qualified Director Nominees on the WHITE Proxy Card
Fiesta Restaurant Group, Inc. (“Fiesta” or the “Company”)
(NASDAQ:FRGI), parent company of the Pollo Tropical® and Taco
Cabana® fast casual restaurant brands, today announced its Board of
Directors (the “Board”) clarified misrepresentations and falsehoods
in an investor presentation and a press release filed by a
dissident group of several activist hedge funds led by JCP
Investment Management, LLC (collectively, the “Pappas Group” or
“JCP”) regarding the Company. The Pappas Group has filed a
presentation and a press release with regards to Fiesta that are
rife with mistakes, misleading comparisons, distorted analyses,
material omissions and alternative facts. The Fiesta Board believes
that these communications destroy James Pappas’ and John Morlock’s
credibility as agents for change and casts doubt on their level of
insight into the restaurant industry. We believe their presentation
and press release are designed to divert attention away from the
damaging facts about their troublesome backgrounds and track
records. While the Board looks forward to continuing to directly
engage with shareholders, it believes it is necessary to highlight
at least some of the major distortions embedded in JCP’s
presentation and press release:
1. After Not Proposing Any Plan For
9 Months, JCP Unveils a Cookie-Cutter “Plan” in the 11th
Hour that Would Cause Serious Harm to Fiesta if Adopted
The Pappas Group did not present a plan to Fiesta in the over
nine months since they first surfaced. Neither their proxy
statement nor any of their previous press releases or letters
included a real plan. Now, 14 days prior to the annual meeting, the
Pappas Group presents for the first time a purported “plan.” JCP’s
last minute “plan” is what you would expect from a novice
investment banker: a handful of amateurish and shallow back-of-the
envelope calculations on an Excel spread sheet. This “plan” is
completely detached from the important nuances and realities of the
Company’s operations and the inner-workings of a real public
company, and lacks analytical rigor. It is a Hail Mary thrown in
the context of a failing campaign.
The contrast to the detailed and sophisticated Renewal Plan
introduced by Fiesta’s new CEO, Rich Stockinger, could not be
starker. Rich, an accomplished and respected restaurant operator,
has spearheaded our strategic Renewal Plan, which is already
underway and delivering tangible results. Our strategic Renewal
Plan was developed following an extensive analysis of both public
and non-public data. Rich recently implemented a very similar plan
at Benihana that revitalized Benihana and maximized value to its
shareholders by increasing the company’s stock price by ~600%.
The Pappas “plan” is conspicuously light on details or
assumptions. Many of its components are vague recommendations and
contain arbitrary financial metric benchmarks that have been thrown
at the wall in an attempt to see what sticks. The specifics that
are included, however, appear eerily reminiscent of failed
initiatives that Mr. Pappas previously introduced at other
companies like Jamba Juice. At the very least, introducing JCP’s
competing, unproven “plan” in the 11th hour would be a significant
disruption that would take valuable resources away from the
continued execution of the ongoing Renewal Plan. Your Board is
concerned that this alternative “plan” carries significant and
unnecessary risks.
If you are asking yourself, “what’s the harm?” of putting JCP’s
nominees on the board, you have to look no further than to Mr.
Pappas’s performance at Jamba Juice for your answer. After forcing
himself onto the company’s board and audit committee in 2015
through an activist campaign, Mr. Pappas implemented a plan with
similar features to the “plan” proposed for Fiesta at Jamba Juice.
Since then, Jamba Juice has lost more than half of its market value
and missed earnings for eleven consecutive quarters. To add insult
to shareholder injury, according to its SEC filings, Jamba Juice
will now likely disclose a material weakness in internal controls,
which has resulted in significantly delayed financial reporting and
a possible delisting from NASDAQ. Just as with Jamba Juice, JCP
proposes a change in Fiesta’s headquarters during a critical
turnaround period, without acknowledging that this very same
approach has generated an accounting crisis and shareholder value
destruction at Jamba Juice.
2. Pappas Exaggerates His Own
Record and Downplays His Most Relevant Directorship
In setting forth his track record, Mr. Pappas makes no
distinction between the mostly microcap companies where he has
served as a director versus the larger companies where he was a
cheerleader from the sidelines, in some cases taking credit for
actions the companies were already in the process of executing.
Perhaps Mr. Pappas’ list suggests he’s a decent day-trader (or had
good timing) given the short-term nature of many of his purported
successes. But he ignores what’s actually relevant to his candidacy
at Fiesta.
He downplays Jamba Juice, which we discuss above and is the
situation that is most clearly and directly relevant to his
potential election at Fiesta. He also neglects to mention his board
service on Samex Mining Corp., where the company filed for
bankruptcy less than one year after Mr. Pappas joined its board
pursuant to a settlement agreement.
Ironically, Mr. Pappas also claims Casella as a success that
justifies his election to the Board of Fiesta. Certainly the
Casella stock price increased, for which he misleadingly claims
credit. But Mr. Pappas’ own ideas were soundly rejected by Casella
shareholders. In fact, by the time Casella’s annual meeting
occurred, shareholders so strongly rejected Mr. Pappas’ plan that
Mr. Pappas withdrew his nominees and didn’t even bother turning in
the few voting proxies he did receive, disenfranchising these
shareholders. Here is what proxy advisory firm Proxy Mosaic said
when it joined ISS and Glass Lewis in rejecting his plan and
nominees:
“Perhaps the most remarkable aspect of JCP’s plan for Casella is
precisely how unremarkable it is…. [The plan] reads like a laundry
list of steps that the Company has taken… We believe that [Pappas’]
election to the Board could potentially disrupt the execution of
Management’s strategic plan…The choice, in our view, is a fairly
clear one: the election of the Dissident simply presents an
unacceptable risk.”
We believe it would be completely accurate to replace “Casella”
with “Fiesta” in the quote above.
3. JCP’s Cherry-Picked Peer Group
is Clearly Designed to Arrive at a Predetermined Conclusion
In an apparent attempt to mislead shareholders about Fiesta’s
strong historic performance through 2015, JCP artificially
manufactured a peer group of only four “Most Similar Competitors,”
arbitrarily disregarding nine peer companies of Fiesta.
These four cherry-picked restaurants have only one thing in
common: strong performance. But one of these companies, Popeyes,
has a completely different business model than Fiesta. And while
Fiesta utilized the other three of these so-called “Most Similar
Competitors” for its own TSR analysis, these restaurants are
inappropriate for realistic operating performance benchmarking when
used as a standalone group.
We assume JCP ignored Fiesta’s other nine peer companies for one
reason only: Fiesta outperformed this group.
4. The Pappas Group’s Attempts to
Malign Fiesta’s Directors with Jefferies’ Associations Are a
Desperate Smokescreen to Distract From Relevant Director
Qualifications
JCP attempts to label three of Fiesta’s Directors as “not
independent” because of their affiliation with Jefferies. Nothing
could be further from the truth.
Brian Friedman is President and Nicholas Daraviras is a managing
director of Leucadia, the parent company of Jefferies, a leading
investment bank in the restaurant industry. Barry Alperin sits on
the board of Jefferies, not Leucadia and is an employee of neither.
JCP fails to mention that Barry was nominated to the Fiesta Board
by a Carrols Restaurant Group director, not Mr. Friedman or Mr.
Daraviras, and was invited to join the Jefferies board well
after he was elected to the Fiesta
Board. Mr. Friedman and Mr. Daraviras joined the Fiesta Board in
2011 as a result of an investment in our Company by a private
equity fund they managed. Upon request of management and the other
Directors, Mr. Friedman and Mr. Daraviras agreed to remain on the
Fiesta Board even after their fund had distributed its remaining
stake in Fiesta to their investors in late 2013. The Board asked
them to stay because of their invaluable expertise in the
restaurant industry, and Mr. Friedman and Mr. Daraviras agreed
because they believe in Fiesta’s story and business and are
committed to creating long-term value for all of the Company’s shareholders.
JCP’s accusations are belied by the facts: rather than profiting
from their Board memberships, Jefferies has, in fact, foregone
millions of dollars of potential investment banking fees as a
result of having affiliates on the Fiesta board. For example,
Jefferies was unable to represent Fiesta in its review of strategic
alternatives for Taco Cabana in 2015 or in the sale evaluation
process for Fiesta in 2016; J.P. Morgan represented Fiesta instead
in both reviews. JCP has also tried to manufacture a history of
Jefferies selling Fiesta stock and leaving shareholders to hold the
bag. When JCP points out that Jefferies sold its last Fiesta shares
in September 2013 at a price of $35.50, it neglected to provide the
necessary context that the stock price of Fiesta thereafter
continued to rise to a high of $65.01. Moreover, JCP does not
mention who never sold any of their Fiesta shares: Brian Friedman
and Barry Alperin.
Most importantly, JCP fails to mention the significant
advantages of having Mr. Friedman and Mr. Alperin on the Board:
Their decades of experience, tremendous expertise and deep
relationships in the restaurant and consumer industry, not to
mention their objectivity and integrity, are difficult to match and
have afforded Fiesta a critical competitive advantage over many
similar restaurant companies.
Contrast this with the Pappas Group’s view of director
qualifications. The Pappas Group appears to be so desperate to
convince the shareholders that their candidates measure up to
Fiesta’s highly qualified Directors that they actually argue that
having “personally built restaurants or liv[ing] in
Texas” somehow makes them more qualified than our two
Directors with decades of corporate leadership and board experience
in the restaurant and consumer space.
Moreover, JCP demonstrates further deception and hypocrisy when
it claims in its presentation that only Mr. Pappas and Mr. Morlock
qualify as “direct shareholder representative” on the Board – but
not Mr. Friedman or Mr. Alperin. Leucadia, of which Mr. Friedman is
President, owns more than 4% of the shares of Fiesta, and Mr.
Friedman and Mr. Alperin personally own more than 70,000 additional
shares. Apparently, in Mr. Pappas’ world view, an “ownership
perspective” counts only when it is provided by James Pappas – but
not from seasoned directors with decades of experience of investing
in the restaurant and consumer space. In addition, Pappas’ cited
list of investments illustrates his short-term investment
horizon.
We should also highlight how many shares JCP’s other purported
“direct shareholder representative” Mr. Morlock owns by quoting
directly from JCP’s proxy statement:
“Mr. Morlock does not beneficially own any shares of Common
Stock, constituting 0% of the outstanding shares.”
5. The Pappas Group’s
Characterization of an “Unengaged Board” and Claim that Fiesta’s
Actions in Response to Them is Contradicted by the Facts
In July 2015, Fiesta’s stock price was $58.01, near its all-time
high. After the business declined in late 2015 and early 2016, the
Board swiftly took bold and decisive action, including engineering
a CEO leadership transition announced in August 2016 – only 13
months after the stock price was near its all-time high and a month
before the Pappas Group filed its initial Schedule 13D. The public
announcements we made in the Fall of 2016 and the Spring of 2017
for which JCP takes credit were the direct result of actions that
were taken and committees that were formed in the Spring and Summer
of 2016. In short, the Board’s response to Fiesta’s deteriorating
business performance was proactive, rapid and decisive and in no
way connected to the Pappas Group. The full timeline is below:
- In November 2015, the Board formed a
special committee and engaged financial and legal advisors to
evaluate strategic alternatives for Taco Cabana
- In May 2016, the Board commenced
discussions with former CEO Tim Taft about this retirement
- In August 2016, the Board announced
Taft’s retirement and formed a special committee to search for a
new CEO and additional Board members with significant restaurant
operating experience, with the assistance of Heidrick &
Struggles
- In September 2016, the Board halted the
spin-off of Taco Cabana and suspended the expansion of Pollo
Tropical into Texas
- In October 2016, the Board decided to
close 10 Pollo Tropical restaurants
- Later in October, the Board formed a
special committee to conduct a review of strategic alternatives,
including the possible sale of the Company, with the assistance of
legal and financial advisors
- In February 2017, the Board chose
industry veteran Richard Stockinger as new CEO, appointed
restaurant expert Paul Twohig (former President, Dunkin Donuts) to
the Board and appointed retired McKinsey & Company senior
partner, Stacey Rauch, to become the Chair of the Board
- In April 2017, our new CEO announced
the Renewal Plan and the closure of an additional 30 Pollo Tropical
restaurants (which contributed to an operating loss of $14.7
million), and later announced ~$7.5 million of annualized G&A
savings
- In May 2017, the Board appointed two
new directors to the Board: Rich Stockinger (our new CEO) and Nick
Shepherd (former CEO and President, TGI Friday’s)
Lastly, we would like to highlight that each director on
Fiesta’s purportedly “unengaged Board” attended 100% of all Board
meetings. In fact, it is questionable whether Mr. Pappas could keep
up with the Fiesta Board’s level of engagement in light of the fact
that he already sits on the boards of Jamba Juice, Tandy Leather
and US Geothermal, in addition to his involvement with the Pappas
family business and running a hedge fund with new activist
campaigns against other companies like Kona Grill.
DO NOT LET THESE MISLEADING CLAIMS,
DISRUPTIVE PROPOSALS AND CHARACTER ATTACKS SWAY YOUR VOTE - PROTECT
THE VALUE OF YOUR INVESTMENT IN FIESTA: VOTE THE
WHITE PROXY CARD TODAY
Your Board’s commitment to acting in the best interests of all
Fiesta shareholders remains unwavering. We have acted thoughtfully
and decisively to review strategic options, enhance the composition
of our Board, execute a CEO transition and implement a
comprehensive Renewal Plan to improve financial results.
At this point in the Company’s evolution – with a new CEO,
revitalized strategy, and an experienced, refreshed and expanded
Board – your Board is excited about the visible path to shareholder
value creation. We strongly believe that it would be detrimental to
shareholders to replace two of Fiesta’s highly-qualified directors
with JCP’s candidates and risk experiencing the shareholder value
destruction that Mr. Pappas is currently generating at Jamba Juice
and that Mr. Morlock oversaw during his tenures at Potbelly
(negative 55% TSR from IPO until his resignation), SpinCycle
(distressed sale), Clubhouse International (bankruptcy) and Boston
Chicken (bankruptcy).
We believe Fiesta shareholders should protect the value of their
investment by voting “FOR” ALL of our experienced and highly
qualified director nominees on the WHITE proxy card: Barry J. Alperin,
Stephen P. Elker and Brian P. Friedman.
Shareholders can vote by completing, dating and signing the
Company-provided WHITE proxy
card, or by telephone or the internet by following the instructions
on the WHITE proxy card.
If you have questions or need assistance voting
your shares please contact:
MacKenzie Partners, Inc.105 Madison
AvenueNew York, New York 10016proxy@mackenziepartners.comCall
Collect: (212) 929-5500orToll-Free (800) 322-2885
About Fiesta Restaurant Group, Inc.
Fiesta Restaurant Group, Inc. is the parent company of the Pollo
Tropical and Taco Cabana restaurant brands. The brands specialize
in the operation of fast-casual restaurants that offer distinct and
unique tropical and Mexican inspired flavors with broad appeal at a
compelling value. For more information about Fiesta Restaurant
Group, Inc., visit the corporate website at www.frgi.com.
Important Additional Information
The Company, its directors and certain of its executive officers
are participants in the solicitation of proxies from the Company’s
stockholders in connection with the Company’s 2017 Annual Meeting
of Stockholders. The Company has filed a proxy statement and white
proxy card with the U.S. Securities and Exchange Commission (the
“SEC”) in connection with such solicitation. STOCKHOLDERS OF THE
COMPANY ARE STRONGLY ENCOURAGED TO READ SUCH PROXY STATEMENT,
ACCOMPANYING WHITE PROXY CARD AND ALL OTHER DOCUMENTS FILED WITH
THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE
AS THEY WILL CONTAIN IMPORTANT INFORMATION. Information regarding
the identity of potential participants, and their direct or
indirect interests, by security holdings or otherwise, are set
forth in the definitive proxy statement and other materials filed
with the SEC in connection with the 2017 Annual Meeting of
Stockholders. Stockholders can obtain the proxy statement, any
amendments or supplements to the proxy statement, and any other
documents filed by the Company with the SEC at no charge at the
SEC’s website at www.sec.gov. These
documents are also available at no charge at the Company’s website
at www.frgi.com in the section
“Investor Relations.”
Forward-Looking Statements
Except for the historical information contained in this news
release, the matters addressed are forward-looking statements.
Forward-looking statements, written, oral or otherwise made,
represent Fiesta’s expectation or belief concerning future events.
Without limiting the foregoing, these statements are often
identified by the words “may,” “might,” “believes,” “thinks,”
“anticipates,” “plans,” “expects,” “intends” or similar
expressions. In addition, expressions of Fiesta’s strategies,
intentions or plans are also forward-looking statements. Such
statements reflect management’s current views with respect to
future events and are subject to risks and uncertainties, both
known and unknown. You are cautioned not to place undue reliance on
these forward-looking statements as there are important factors
that could cause actual results to differ materially from those in
forward-looking statements, many of which are beyond Fiesta’s
control. Investors are referred to the full discussion of risks and
uncertainties as included in Fiesta’s filings with the Securities
and Exchange Commission.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170525006088/en/
Investor Relations:Raphael Gross,
203-682-8253investors@frgi.comorMedia Relations:Phil Denning,
646-277-1258Phil.Denning@icrinc.com
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