Potbelly makes a deal with an activist

The struggling sandwich chain has appointed two new members to its board in an agreement with a coalition of shareholders.
Photograph: Shutterstock

Potbelly Corp. on Monday named David Near and Todd Smith to its board of directors as part of an agreement with a coalition of activist shareholders led by Vann A. Avedisian Trust.

The agreement comes after the Chicago-based sandwich chain said it is in danger of breaching covenants in its lending agreement and is in discussions with lenders.

Near is a third-generation restaurateur and former Wendy’s executive who also founded Pisces Foods. Smith is a former Sonic Drive-In executive who in 2017 took an equity stake in Cafe Rio.

“Prior to the COVID-19 pandemic, our turnaround was gaining traction, and with Dave and Todd’s expertise, we look forward to executing on our strategic priorities to enhance value for our shareholders,” Dan Ginsberg, Potbelly’s chairman, said in a statement.

The Vann A. Avedisian Trust group first began agitating for change late last year and in February said it would nominate members to the Potbelly board.

Potbelly has dealt with numerous activist shareholders in recent years, including Ancora Advisors, which bought 5% of the company’s shares last year, and 180 Degree Capital Corp., which acquired 6%. A fourth activist, Chain of Lakes Investment Fund, revealed a 5.3% stake in March.  

Potbelly has struggled with weak traffic and sales and has been closing locations: The company and its franchisees closed 21 stores last year. Before same-store sales rose 0.1% in the fourth quarter of 2019, they’d fallen for each of the previous 11 quarters.

The company in March drew down $40 million on its revolving credit line to provide it with cash to get through the pandemic. It also received, but later returned, a $10 million loan under the Paycheck Protection Program.

Potbelly said last week that it was in danger of breaching the covenant on its loan through JP Morgan and is in discussions with the lender. “We are in discussions with JP Morgan regarding potential modifications to our covenants and/or temporary waivers,” Potbelly said. “An acceleration of the debt under our credit facility would adversely affect our operations and financial condition.”

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