Activist Bug Bites BJ's Restaurants


(Updated: With comments from BJ's and updated ownership information.)

Remember when BJ's Restaurants was casual dining's greatest hope?

The suddenly struggling chain of restaurants and brewpubs is now the target of a group of investors, led by Patrick Walsh. The group, including Walsh's Atlas Fund and Luxor Capital, nominated five members to BJ's 10-person board of directors.

The group led by Atlas Fund and Luxor have been amassing stock in BJ's since January and now own 12.4 percent of the company's shares.

They sent a letter in late February, nominating the five board members, including Walsh, Jason Bernzweig, a partner in Zelman Capital; Mark McEachen, a director at Dex Media; Jeffrey Neal, a partner a Horizon Capital, and Emanuel Pearlman, CEO at Liberation Investment Group.

In a statement, BJ's also noted that another fund, Clinton Relational Opportunity Master Fund—which owns less than a half a percent of the chain's stock—has "separately" said it plans to nominate five people for the company's board.

The company said it would review the nominations. "BJ's has always been committed to engagement with its shareholders, including regarding corporate governance matters," the company said in a statement. "The board remains highly focused on creating the optimal conditions to generate long-term value and will continue to take actions that support the interests of all shareholders."

Walsh has a habit of targeting restaurant companies, with mixed success. He gained a seat on the board at Minneapolis-based Famous Dave's last year. He previously helped launch a proxy fight against Red Robin, securing a seat for one of his group members, David Makula. But a previous effort targeting Denny's largely failed.

BJ's seems ripe for activist involvement. Not long ago, the company was considered a bright spot in an otherwise dim casual dining market, but in the past couple of years that light has faded considerably, and its stock price has fallen accordingly—it had lost more than half of its value since 2011, before the activists got involved.

Revenue at the company grew 9.4 percent last year, but net income fell 33 percent. Same-store sales fell 2.7 percent in the quarter, and 1.1 percent for the year, and were down 4.2 percent through mid-February. Nearly 60 percent of the company's locations are in California, Florida or Arizona, places largely untouched by the odd winter weather, and yet on its last conference call the company couldn't stop talking about weather problems.

While Walsh may not always get his demanded board seats, each of the chains with which he has become involved have thrived on Wall Street in his wake. And activists in general tend to light a fire under boards and executives as they suddenly find new ways to improve shareholder value with their jobs at stake.

Not surprisingly, investors have cheered the news. As we write this, the stock is up 12 percent.

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