Lubys: The Other Foot

The story so far: The Pappas family runs Lubys,with the brothers occuping the CEO and COO posts. The incumbent board is happy with this, although some investors, notably Ramius Capital, object that given the other interests of the Pappas' this is a situation rife with conflict.

Yesterday, we spoke about how the incumbent board responds to the conflicts charge while playing defense. We saved for today the fact that their chief response has been to take the offensive. The conflict shoe, they say, is on the other foot.

As CEO Chris Pappas said in a letter to the Houston Chronicle, which it printed this Sunday: "Ramius ... doesn't care about Luby's history or our future. Ramius doesn't bring relevant restaurant experience, only a risky notion to strip Luby's of its real estate assets, the sort of short-term financial scheme typical of Wall Street thinking."

The general charge here is a common one, that there is an inherent opposition between Wall Street and Main Street, and that it the opposition between the New Yorkers who care only about the next quarter's bottom line -- or who aren't even thinking that far ahead, because they're hoping the get a quick churn-around on the stock maybe this afternoon or tomorrow -- and those decent heartland-dwelling folk who stick around to build a business over years or decades.

Personally, I think that opposition is nonsensical. If the accounting is done honestly, next quarter's bottom line will be what it is because of long-term considerations, the two are only in opposition if the corporate management is allowing or encouraging its accountants to let them be in opposition. And the big problem in such a case is in the heartland, not on Wall Street.

As to real estate ... this is a more specific example of the broader nonsense of the above quoted rhetoric. Yes, Ramius has said that if its nominees get on the board they'll study the possibility of real estate sales. And why should they not? Is it essential to the success of a restaurant that it own the land its sitting on? Surely not. Indeed, maybe Lubys are sitting on leased land as it is (anbd sometimes the leasor is another Pappas family interest), so the question of whether some land ought to be sold is a question of moving along a continuum, not a matter of yes-or-no.

In general, I think Luby incumbents have presented a plausible defense to the charges of conflict, but their offense Sticks. Maybe neither side has any conflicts of a sort about which non-aligned shareholders ought to worry. In that case, the shareholders may have to study the respective track records of the two sides to make up their minds.

They'll have to do so without any further assistance from me, though, because this blog must move onward, ever onward. Tomorrow, I plan to discuss JANA and CNET.

Lubys, continued

On Friday, both the incumbent board and the dissident slate in the Lubys proxy contest filed their "definitive proxy soliciting materials" with the SEC.

(By the way, the company itself uses the apostrophe, re-positions it, or drops it according to context, so Lubys, Lubys', and Luby's are each correct.)

As I mentioned yesterday, the Pappas brothers run Lubys. I wasn't so clear yesterday about the fact that the Pappas' also run privately owned restaurant chains under variants of the family name: Pappadeaux, Pappasito's, Pappas Bros. Steakhouse, Pappas Seafood House and Pappas Bar-BQ.

The dissidents argue that this creates a conflict. The interests of the shareholders of Lubys might well be served by competitive actions vis-a-vis those privately owned chains that the Pappas' themselves are unlikely to undertake.

Indeed, the Pappas own the land on which some of the Lubys restaurants sit, and within this landlord-tenant relationship there is further room for dealings at the expense of the tenant's shareholders.

The incumbent board replies that the Pappas' are among the largest sharehholders in Lubys, so their interests are aligned with those of the other shareholders, that they are only two members of a ten-member board, which has "worked diligently to supervise the efforts of Management in turning the company around," and that in fact the Pappas' have turned the company around.

"Luby's today has the financial strength to execute on its strategic growth plan...."

Further, the incumbents take the position that the "conflict of interest" shoe is on the other foot. I'll write tomorrow about Luby's case against Ramius.

Luby's: Fish or Beef

Investors in Luby's, a cafeteria-style restaurant chain, at any one of which you might well find yourself standing in line behind some fellow who's hesitating between the fish plate or the beef, have a choice to make of their own. Stick with the Pappas family, or go with the dissident slate.

And the professional kibitzers -- otherwise known as proxy advisory services -- are saying the "fish" offered by the company's largest shareholder, Ramius, looks good.

They've still got a bit more than a week to fill up their plate and take a seat. The annual meeting is January 15.

Luby's has been a publicly held corporation since 1973 and has been listed on the New York Stock Exchange since 1982. The two members of the Pappas family, Christopher and Harris, arrived in 2001. Currently, Chris P is the CEO and Harris P is the COO. And there's the rub.

But it's a lazy Sunday and I'll stop here, holding back discussion of the pros and cons of Pappas family control for tomorrow.

As for Ramius, I'll simply observe that my regular readers may remember the name.