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Private-equity firms eyeing Potbelly

With activists pushing a potential sale, the sandwich chain gets indications of interest.

Multiple private-equity groups are interested in buying Potbelly as activists push the company to more aggressively pursue a sale.

The Street first reported the firms’ interest in the company. Sources confirmed that interest to Restaurant Business on Thursday.

The firms would be interested in buying the chain at $14 to $16 a share. Potbelly opened trading on Thursday at $12.85 a share and rose more than 1% in morning trading.

Potbelly did not respond to a request for comment as of late Thursday morning.

The Chicago-based sandwich chain has struggled to generate investor enthusiasm since its 2013 initial public offering.

The stock surged to more than $30 a share in the days after its IPO but quickly declined and settled into the low teens, where it has traded ever since amid persistently weak sales.

Activists have been pushing the company to either make major changes in the board and management, and the way the chain operates, or find a buyer.

In July, the activist investor Ancora Advisors urged Potbelly to either make changes or sell. Ancora said investors have experienced “nothing but losses” since the 2013 IPO.

In August, the company hired J.P. Morgan to analyze strategic alternatives, suggesting the company could be up for sale. Shortly thereafter, Potbelly reached a settlement with Ancora, adding portfolio manager Joseph Boehm to its board.

In December, Potbelly hired Alan Johnson to replace Aylwin Lewis, who left the chain in May.

Potbelly also took steps to assure investors that its strategic review was still ongoing.

That didn’t sit well with another activist, Privet Fund, which revealed a 5.2% position in Potbelly in November and has started agitating for change at the company.

In a filing last month, Privet said it was “disturbed by the lack of accountability at the board level” for deteriorating financial results. Privet also said, “it was imprudent to recruit a new CEO amidst the current backdrop of an advisor-led strategic review” as well as discord between the company and its shareholders.

The activist involvement suggests that Potbelly’s board could face a proxy fight this year if the strategic review doesn’t lead to major changes.

It could also prompt the board to sell if a buyout firm makes an offer that would yield a premium—meaning any offer from a potential buyer would have to be in the higher end of the $14 to $16 range.

Potbelly has rarely traded above $15 a share since its late 2013 decline.

A $16 offer per share would represent a 25% premium off of Thursday’s opening price, and would give Potbelly a cash valuation of nearly $400 million, based on 24.8 million shares outstanding as of Thursday.

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