Restaurateur Eyes Rusty Pelican for Possible Takeover
A Rhode Island restaurateur said Wednesday that he has acquired about 7% of the outstanding shares of Rusty Pelican Restaurants Inc. and is considering a takeover attempt for control of the Irvine-based company.
Edward Grace III, president of Phelps-Grace Co. Inc. of East Providence, R.I., blamed “sleepy management” by Rusty Pelican’s chairman, Louis Siracusa, and its president, T. Randolph Howatt, for the seafood dinner-house chain’s recent financial struggles. The company reported a $256,000 net loss for the 1986 fiscal year ended Aug. 3, contrasted with net income of $2.3 million for the prior year.
“All I look at is the company’s earnings, and they stink. I’ve got to protect my investment,” Grace said in an interview. That investment, which exceeds $1 million, has given Grace between 190,000 and 200,000 shares--or 6.8% to 7.1% of the outstanding shares of Rusty Pelican. Grace is not related to Peter Grace, head of New York-based W.R. Grace & Co.
He said Wednesday he has surveyed Rusty Pelican shareholders who own an additional 3.4% of the company and has found that they, too, are unhappy with company management.
Documents to be filed today with the Securities and Exchange Commission will reflect Grace’s purchase Wednesday of 10,000 to 11,000 shares, he said.
The papers, Grace added, also state that he is considering launching a bid to take control of Rusty Pelican.
Siracusa and Howatt could not be reached for comment.
According to Grace, whether he actually attempts a takeover will depend on several factors including results of Rusty Pelican’s fiscal 1987 first quarter earnings, due out this week, and the outcome of the restaurant company’s annual shareholder meeting Dec. 10 in Irvine. “I’ll sit there and listen, if I’m not impressed, I won’t sit back,” he said.
With 38% of the company’s common stock controlled by the top two managers, however, analysts agreed Wednesday that Grace faces an uphill, if not impossible, battle for control.
The company’s single largest holder is founder Siracusa, who owns 30.7% of Rusty Pelican’s 2.8 million common shares outstanding. Howatt owns 7.1%.
“Getting a majority position would be very tough,” noted Robert Patterson, managing partner of the Los Angeles office of Laventhol & Horwath, an accounting and consulting firm.
He said that Grace “would have to get at least 38%, then convince another 24%” of shareholders to oust Siracusa and Howatt.
Grace refused to divulge how he might try to gain control, although he said a shareholders’ derivative suit is “fairly likely” against company board members for mismanagement. “Shareholders have a lot of legal remedies, and I plan to resort to every one of them,” he said.
Latest Chapter
Grace’s announcement is the latest chapter of a battle that began late last month--soon after the company reported its lackluster fiscal 1986 earnings despite record sales for the year of $59.8 million. In October, Grace announced that he had acquired about 5.2% of the company, paying between $6.12 and $8.25 a share and that he had requested a seat on the board of directors to “help out a company that obviously was having problems.” Grace picked up an additional 34,000 shares over the past six weeks, made his block purchase Wednesday, and said he intends to acquire still more shares. Rusty Pelican closed Wednesday at $9.875 per share, up 37.5 cents, on a volume of 93,600 shares.
Siracusa and Howatt in the past have defended their management of the chain, which operates 19 restaurants in seven states, including five in Orange County.
Several analysts Friday agreed that the company has made some management mistakes, including too-rapid expansion, poor site selection in some cases and failing to diversify its menus to include lighter foods in smaller portions.
But they said the chain’s profitability also has been severely hampered by a general downturn in the restaurant industry. “The criticism has been somewhat justified but not enough to call for (management’s) ouster,” said one analyst, who asked not to be named.
Grace, the head of a restaurant management company, said he is the chief shareholder in four operating restaurants and has five more under construction. The restaurants, in Rhode Island, Vermont and Massachusetts, are profitable, he said.
Phelps-Grace, he said, had revenues of about $11 million last year, with profits “in excess of $2 million.”
