Advisory firm hands J. Alexander’s activist a big win

Institutional Shareholder Services told the company’s investors to withhold votes from two directors.
Photograph: Shutterstock

A key advisory firm handed Ancora Advisors a major win in its proxy battle with J. Alexander’s on Monday, recommending that shareholders withhold their votes from two of the company’s directors.

Institutional Shareholder Services (ISS) agreed with Ancora’s recommendation that shareholders withhold their votes from two directors, Timothy Janszen and Ronald Maggard, citing the company’s “relative underperformance and governance shortcomings.”

The ISS report was critical of the Nashville-based casual-dining chain operator’s strategic plan, stock performance and its backing of a controversial merger with Ninety Nine Restaurants a year ago that shareholders later defeated. The firm also said J. Alexander’s didn’t spend enough time evaluating Ancora’s proposal to acquire the company at $11.75 per share.

“The company has underperformed its peers and the Russell 2000 restaurant index, irked shareholders with an acquisition proposal riddled with conflicts and questionable strategic rationale and has failed to clearly articulate a strategy going forward,” ISS said in its report, according to Ancora.

Proxy advisory firms such as ISS evaluate public company board issues, such as the proxy fight between Ancora and J. Alexander’s, and make recommendations. Those recommendations are considered key in such fights because many institutional shareholders will rely on them for their decisions.

Because large institutions such as retirement funds hold so much stock, their votes are vital in the outcome of such board elections. As such, ISS’ recommendation gives Ancora a strong advantage in its bid to have votes withheld from the two directors, which the investor believes is needed to “send a message” to the company.

J. Alexander’s executives said in a statement Monday that they were “disappointed” with the recommendation.

“Tim is the CEO of our largest shareholder and Ron has been investing in and managing restaurant companies for decades,” said Frank Martire, lead independent director for J. Alexander’s. “They have been proven and invaluable members of our board since our spinoff of the company by Fidelity National Financial in 2015.”

The dispute between Ancora and J. Alexander’s has centered on the company’s decision to turn down the investor’s $11.75-per-share offer just months after shareholders defeated a proposal to merge the company with the Fidelity-owned Ninety Nine Restaurants—an all-stock deal that would have handed over control of the company back to Fidelity at a valuation of $11 per share.

Critics of that deal say it was riddled with conflicts of interest. Janszen’s private-equity firm is a large shareholder at Ninety Nine, and Maggard was on a board at a Fidelity subsidiary that held controlling shares in the chain.

Ancora wants J. Alexander’s to run a sale process, arguing that the company is not big enough to get the attention from investors that it needs. It has also chided the company for conflicts of interest related to that deal.

J. Alexander’s has argued that Ancora’s offer was not serious and would have been too low a price for the company. It called the offer a “publicity attempt” and said it did not include financing.

In its recommendation, however, ISS said that J. Alexander’s board “does not appear to have spent sufficient time” with the investor to make that call.

It also said that J. Alexander’s “strategic and operational plan is not entirely clear” and that the company did not meet many of the targets established the last time it made an operational plan back in 2017.

“Shareholders have no way of setting expectations and evaluating the company’s operational performance against its set goals,” ISS said. “Following the defeat of the Ninety Nine Restaurants acquisition attempt, the management and the board have failed to provide shareholders with a clear plan on improving performance.”

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