The strange, uncertain merger between J. Alexander’s and Ninety Nine Restaurants just got stranger this week, and more uncertain.
The publicly traded, upscale casual-dining chain operator on Monday adjourned for two days a shareholder meeting designed to approve its merger with the more midscale concept Ninety Nine.
The Nashville-based company said it adjourned the meeting after Ninety Nine’s owners recently proposed amending the deal, which it says is “more favorable to shareholders.” The deal was amended to eliminate a closing condition having to do with Tennessee law regarding controlled companies.
But the delay suggests that J. Alexander’s doesn’t have the votes to approve the deal and is now trying to muster more support. Indeed, Marathon Partners, an activist investor that has taken issue with the proposal, called the adjournment an “eleventh-hour manipulation.”
“We continue to be exasperated by these thinly veiled efforts to coerce approval of a transaction that is not in the best interest of shareholders,” Mario Cibelli, managing director with Marathon, said in a statement. “The fact is that J. Alexander’s shareholders had many months to consider the proposed 99 Restaurants transaction and clearly did not approve it at yesterday’s special meeting.”
The merger has fallen under the radar, largely because of the companies’ relatively small size and the fact that few investors pay much attention to J. Alexander’s. Yet it’s a fascinating, complex deal that seems unlikely to get the OK from shareholders—putting the deal in question.
J. Alexander’s operates a trio of upscale casual concepts, including its flagship chain J. Alexander’s, Redlands Grill and Stoney River Steakhouse. Combined, the chains operate 44 locations, primarily in the Midwest and South.
Under the proposal, the company would acquire the 106-unit New England chain Ninety Nine Restaurants in a deal valued $199 million. But J. Alexander’s would pay for the deal in stock.
That stock would give controlling interest to Ninety Nine’s owner, Fidelity National Financial—which is also J. Alexander’s former owner, having bought the chain in 2012 and spun it off as a public company in 2015.
Fidelity’s chairman, Bill Foley, would get a seat on the J. Alexander’s board once the deal is complete. Foley was the chairman of CKE Restaurants in the 1990s when the company, which owned Carl’s Jr., bought Hardee’s.
But most of the J. Alexander’s board has a relationship with Fidelity, mostly as board members with the company’s restaurant-owning subsidiaries Fidelity Newport Holdings and Fidelity National Financial Ventures. They own American Blue Ribbon Holdings, which operates Ninety Nine Restaurants.
J. Alexander’s board argues that it understands the potential conflicts, and thus indicated that the deal should only get approved if “disinterested shareholders” who have no relationship with Fidelity are OK with the merger.
Still, those relationships, and that control, have made the merger highly controversial.
The proxy advisory firms, Institutional Shareholder Services and Glass Lewis, have recommended against the deal.
Those recommendations have likely soured investors on the proposal. Many investors vote based in part on the services’ views.
Marathon’s issue is that the merger would hand over control of the company to Fidelity without giving shareholders a “control premium,” or higher price for their shares than the existing stock value.
Marathon also said it plans to urge a strategic review “if shareholders reject this deal, which it appears they have but for the manipulation and delay by the transaction’s proponents.”
For its part, J. Alexander’s has been vigorously defending the deal, going so far as to start a website, www.jalexandersand99.com, to build support.
Last week, two large shareholders said they were behind the deal. But one, Newport Global Advisors, wasn’t able to vote on the merger because it isn’t considered a “disinterested shareholder.” Newport partnered with Fidelity on the formation of American Blue Ribbon Holdings.
But Eminence Capital, owner of 8.8% of J. Alexander’s stock, indicated it would vote for the plan.
Apparently, it wasn’t enough.