Mario Gabelli thinks that J. Alexander’s should be sold, but not necessarily to Ancora Advisors.
The managing member of Marathon Partners Equity Management, which owns 6.6% of J. Alexander’s stock, said in a letter to the company’s board that it should auction itself off to the highest bidder.
The letter came just days after another major J. Alexander’s shareholder, Ancora, offered to buy the company at $11.75 per share.
“We believe the most realistic path to maximize shareholder value is for the board to initiate a fair and open auction process, and sell J. Alexander to the highest bidder.
The letter will probably go a ways toward pushing J. Alexander’s toward a sale. Marathon and Ancora are two of the six largest shareholders of the company. And activist investors have a history of success in pushing the company toward a certain direction.
Ancora’s offer this week featured no committed financing and was not binding, meaning that it likely was done to prompt sales discussions following years of poor stock performance at J. Alexander’s.
Ancora’s offer letter featured numerous criticisms of the company’s performance and conflicts of interest on the J. Alexander’s board, especially as it relates to the company’s former owner, Fidelity National Financial.
J. Alexander’s said in a release this week that it is reviewing Ancora’s offer. (UPDATE: The company has since rejected the offer, calling it undervalued, and it defended itself amid Ancora's criticisms.)
J. Alexander’s has an odd history when it comes to proposed deals. The company has long been a sleepy, under-the-radar publicly traded chain—one of Ancora’s main points, for instance, was that the company is too small to justify its presence on the public markets. J. Alexander’s operates just 46 locations.
In 2012, Fidelity tried to buy J. Alexander’s for $12 per share. An activist investor at the time, Privet Fund, pushed back against the plan, arguing that the company was worth more. Other investors stepped in with bids, and Fidelity ended up paying $14.50 after raising its offer multiple times.
Fidelity merged its Stoney River Steakhouse concept into J. Alexander’s and then spun the company off in 2015.
Three years later, Fidelity moved to gain control of J. Alexander’s again, with a proposed merger with 99 Restaurants, owned by a Fidelity subsidiary.
The all-stock deal would have given that subsidiary a majority of J. Alexander’s shares. Gabelli led an effort to push back against the merger, which many saw as an effective sale of the company without offering shareholders a premium on the value of their shares.
J. Alexander’s shareholders ultimately defeated that merger.
Still, in his letter Gabelli said that the company remains too close to its former owner and its chairman, Bill Foley.
“The board is comprised of individuals that are or were associated with entities controlled by William P. Foley II, and the company has made no effort to seek new board representatives who might offer fresh perspectives to the management team,” Gabelli wrote.
Gabelli wrote that the company should not reject Ancora’s offer “without a full auction process.”
He also agreed with Ancora in that the company is too small to be publicly traded. J. Alexander’s is “an orphaned company,” and as such can’t get attention from investors.
J. Alexander’s stock has hovered mostly between $11 and $12 a share since the spinoff, reaching an all-time high of $13.20. It traded at $11.17 a share as of mid-afternoon Thursday.
Gabelli wrote that the company’s shareholder returns “have severely underperformed all relevant benchmarks since the spinoff.”
Gabelli also said that the underperformance “has been exacerbated by the lack of a compelling plan by management and the board to grow shareholder value.”