UPDATE, June 19, 2019: Vintage Capital sent a letter to Red Robin demanding that the company call a special meeting in which the investor will call for the removal of five directors, which is a majority of the board. The investor said it would withdraw its request for a special meeting if the board publicly announced by June 29 that it is pursuing a diligent strategic review process in which Vintage would participate.
- Vintage Capital has offered to buy out Red Robin in full, according to Restaurant Business. The activist investor currently controls about 12% of the casual burger chain's stock.
- The $461 million offer equated to a 57% premium over Red Robin’s stock price this week. The investor also threatened a proxy fight to replace current board members if leaders refuse to look into a sale.
- Just last week, Red Robin adopted a poison pill designed to protect the company from investors looking to gain control through share acquisition.
This move could mark a potential end to a lengthy period of tumult for Red Robin, which is in the midst of searching for a new CEO and a strategic turnaround. The company has posted negative comp sales in the last 10 out of 12 quarters, hindered especially by its heavy shopping mall presence and operational fumbles facilitated by labor cuts. To get an idea of the cumulative effects these issues have had, Red Robin's traffic was down 5.5% during the first quarter.
Despite the recent closure of 10 underperforming restaurants and increased staffing, Vintage is clearly growing impatient with the turnaround. The investor is likely also attracted to Red Robin's stock, which has lost half of its value throughout the past year.
Vintage's move is bold — particularly without a CEO yet in place and days after the Poison Pill, and Red Robin itself even expressed surprise, writing in a statement: "In multiple conversations with Vintage, we have expressed our openness to Vintage's participation in our ongoing search to identify a world-class CEO, and to maintaining a constructive dialogue. Given our dialogue to date, we were surprised by the content of the letter we received today, as Vintage has not been willing to propose any CEO candidates."
But Vintage's letter made it clear the investor doesn't have confidence in the board's leadership and therefore quality CEO candidates won't be attracted to the job. That's quite a back and forth without much insight as to what could possibly be next.
What we do know is this: Red Robin's struggles are unsustainable, particularly in an intensifying market and especially in the burger segment. According to IBIS World, the burger restaurant industry has grown by 3.5% throughout the past five years, likely driven by the fast casual better-burger category that boasts the likes of Five Guys and Smashburger.
Of course now there’s also the additional squeeze of the growing plant-based burger category. Red Robin jumped on that trend relatively early, but it has yet to move the needle. Reports this week of the chain running out of the product won’t likely help much. This underscores another clear point: Red Robin needs whatever help it can get right now to stop its critical sales and traffic issues, and Vintage may be one such solution.