47% Dip in Rusty Pelican Profits Fuels Potential for Takeover Bid
The potential for a takeover battle at Rusty Pelican Restaurants Inc. heated up Friday when the Irvine-based dinner house chain reported a 47% dip in profits for its fiscal 1987 first quarter.
Net income slipped to $47,000 for the quarter ended Oct. 26, from $88,000 for that period a year earlier.
Sales dropped 9% to $13 million, from $14.3 million for the previous year.
The lackluster quarterly report came only two days after Edward Grace III, a major shareholder and Rhode Island restaurateur, publicly threatened to seek control of Rusty Pelican because of low earnings and what he calls its “sloppy and unproductive” management.
Greg Dollarhyde, the company’s chief financial officer, defended the first-quarter results, reiterating the contention of management that the industry in general has slumped because there are fewer people dining out in more restaurants.
Chain Operates 19 Restaurants
Pete Siracusa, founder and chairman, said restaurant sales in economically depressed regions such as Texas and the Pacific Northwest detracted from the favorable results in the company’s core markets, which are California, Arizona and Illinois. The chain operates 19 restaurants in seven states. There are five in Orange County.
The company also blamed high insurance costs--which jumped more than $56,000 during the past quarter--for its poor earnings. Dollarhyde said the company last summer took steps to turn itself around, including redesigning its menu and offering new items in Southern California outlets.
Nonetheless, the earnings report sparked a barrage of fresh criticism from Grace, who said he believes that the company should have had earnings of at least $1.3 million.
“We’re not looking at a proxy battle at this point,” Grace said. “We’re either looking at buying more stock on the open market, making a tender offer or making a deal” by using a lawsuit as leverage, Grace said. He added that he has a management team “ready to go” and would be satisfied with Rusty Pelican management’s turning the reins over to him. Company officials have said that they will resist any attempts to oust the management. Grace, after a six-week binge of furious buying that continued through Friday, now owns 200,000 shares--or 7.14% of Rusty Pelican’s 2.8 million outstanding shares, he said. With the purchase Friday of 5,000 shares, Grace inched past Rusty Pelican President R. Randolph Howatt to become the company’s second-largest individual shareholder.
Siracusa owns 30.7% (or 864,244 shares) of common shares outstanding. Howatt owns 7.13%, or 199,887.
In addition to his 7.1%, Grace said Friday, 13% of Rusty Pelican shareholders support his efforts.
Rusty Pelican closed Friday in over-the-counter market trading at $9.75 a share, up $1.25 for the day on a volume of 245,500.
