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Del Frisco’s agrees to cooperate with activist investor

Cooperation agreement with Engaged Capital terminates poison pill

Del Frisco’s Restaurant Group has reached a cooperation agreement with Engaged Capital, an activist investor that has demanded the company review a possible sale of parts of the company and strategic decisions surrounding its restaurant chains. In late December, Del Frisco’s began a strategic review in response to the activist investor’s demand. As part of this recent cooperation agreement with Engaged Capital, Del Frisco’s has also agreed to add a new board member, aligned with Engaged Capital, to the company’s Board of Directors, and will now terminate its poison pill shareholder rights plan.

The shareholder rights plan of a public company is seen asl a defensive tactic to avoid being an acquisition target, and is typically structured to dilute the ownership ratio of active shareholders seeking to increase their stake.

Engaged Capital gains favorable Board seat

According to the Del Frisco’s announcement, Joe Reece, a 30-year business leader, has been appointed to the Board, which will now have seven members. He will also serve as the chairman of the Transaction Committee responsible for the strategic review. Reece’s appointment is as a Class III director and the term expires at Del Frisco’s Annual Meeting of Shareholders in 2021.

Engaged Capital agreed to specific standstill and voting commitments supporting Del Frisco’s and lasting from the cooperation agreement date, and ending when the Del Frisco’s 2019 Annual Meeting of Shareholders takes place.

Reece is the founder and chief executive of Helena Capital. He previously served as executive vice chairman and head of the Investment Bank for the Americas at UBS Group AG from 2017-2018 as well as on the board of UBS Securities, LLC. He once served as special Counsel and attorney at the SEC, and has held various other positions within banking and the securities industries.

Reece currently serves as the chair of the Audit Committee at Boxwood Merger Corporation and is a member of the Compensation and Audit Committees at RumbleOn, Inc., with additional chair and committee appointments throughout his lengthy career.

“We look forward to furthering our constructive relationship with Engaged Capital. Under the cooperation agreement, we are terminating the rights plan well before its scheduled expiration, which we believe is in the best interests of the company and all of its shareholders,” said Norman Abdallah, Del Frisco’s chief executive.

Bartaco could have more space and investment to grow outside of DFRG, suggests Engaged Capital.
Bartaco could have more space and investment to grow outside of DFRG, suggests Engaged Capital. Photo by BarTaco.

Concessions followed by arduous transactional work ahead

Engaged Capital had previously suggested that Del Frisco’s undervalued the Sullivan’s Steakhouse chain when it sold it last year to Romano’s Macaroni Grill. The activist investor was also critical of the purchase of Barteca Restaurant Group, which the firm considered risky and overpriced.

[Related article: Del Frisco’s considers sale of company after activist investor letter]

In a December 6 letter, Engaged Capital Founder and Chief Executive Glenn W. Weiling also called out several strategic decisions he considered poor. He wrote that Bartaco, which is a promising chain gained through the acquisition of Barteca, could see its growth held back under Del Frisco’s ownership and was better off on its own.

Based on this new cooperation agreement, it is highly likely that Del Frisco’s will move to sell Barteca in parts or as a whole.

“I am pleased to have reached this agreement as part of a constructive dialogue with Del Frisco’s,” said Weiling, in an announcement detailing the new cooperation agreement. Del Frisco’s will file Form 8-K to be filed with the SEC to reflect the cooperation agreement and the amendment to terminate its poison pill.

Photo credit: Del Frisco’s (featured), Bartaco (inline)

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