| Activism Series

Key takeaways from Luby’s proxy campaign outcome

by | Aug 16, 2019

Luby’s Inc. operates as a multi-brand restaurant company in the United States.  In late 2018, Bandera Partners nominated four candidates for election to the Board at the 2019 AGM. In January 2019, Bandera Partners lost the election.

(1)  Huge insider ownership is always a hurdle in a proxy fight, irrespective of shareholder sentiment

As per the analysis shown below, 68% of the “Non-affiliated Shareholders” (i.e. shareholders excluding insiders and the Bandera Partners) voted for Jeff Gramm, a nominee of Bandera Partners. This clearly shows that a majority of common shareholders were upset with the incumbent directors.

Nevertheless, the company’s insiders won the proxy fight, predominantly due to the huge insider ownership, which was roughly 40%.

Number of shares voted (1)   26,940,743
minus insiders (2)   10,707,208
minus Bandera’s ownership (3)     2,911,000
= Non-affiliated shareholders (1 minus 2 minus 3)   13,322,535
I. Total number of votes received by Bandera  11,970,194
Bandera’s ownership     2,911,000
Number of votes received by Bandera from “other shareholders”     9,059,194
% of votes received from shareholders, excluding insiders & Bandera           68%
II. Bodzy, an incumbent director, who received the highest number of votes  14,478,589
Number of votes received from shareholders (excluding insiders)     3,771,381
% of votes received from “Non-affiliated shareholders”           28%

(2) ISS, a proxy advisory firm, approves an activist investor nominating a family member as a nominee: 

Bandera Partner’s founder, Jefferson Gramm, nominated his father (William Philip Gramm) as one of his Board nominees. Even though ISS says that “the inclusion of a family member on the slate represents a potentially suboptimal dynamic”, ISS finally recommended that shareholders vote for Philip Gramm.

(3) Overcommitted nominee is voted against by ISS and G&L

Mr. Singh (nominee of Bandera Partners) did not receive endorsement from ISS or G&L due to a large number of outside responsibilities.

G&L noted: “We believe the incumbent board has made a reasonable argument that Mr. Singh appears to have a large number of outside responsibilities that would limit the time and attention he could provide as a director of Luby’s.”

Additional note

Example of double standards: The company argued that William Philip Gramm (nominee of Bandera Partners) is 76 years old and ineligible to stand for election. A few weeks before this, the company granted two incumbent directors (Judith Craven and Harris Pappas) a limited waiver from the age limit.

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