Rusty Pelican Investor Mutes Criticism and Gives Up Control Bid

A Rhode Island investor with a big stake in Rusty Pelican Restaurants Inc. did an about-face Tuesday, saying that he has gained confidence in the dinner-house chain’s management and is giving up his struggle for control.

Edward Grace III, president of Phelps-Grace Co. of East Providence, R.I., apparently made peace with management of the Irvine-based company last week during two days of discussions with Rusty Pelican’s chairman, Louis (Peter) Siracusa.

In a prepared statement, Grace said he intends to continue buying shares of Rusty Pelican “for investment purposes” but declined to be more specific. He said his stepfather, Samuel Orr of Marco Island, Fla., now has acquired 74,000 shares, or 2.6%, of Rusty Pelican’s common shares outstanding.

Grace said he now plans to work with Rusty Pelican’s management to boost the company’s sagging profits, adding that he expects the company’s earnings to improve as soon as the fiscal 1987 third quarter. “I’m very confident” that the chain “is taking appropriate steps . . . to grow in a fiscally responsible position,” Grace said.

Siracusa, in turn, praised Grace--the company’s second-largest individual shareholder--as a “good businessman.” But Siracusa stopped short of saying that he was ready to offer Grace a seat on his company’s board.

Tuesday’s announcement seemed anticlimatic after Grace’s loud and steady criticism since October of Rusty Pelican management as “sleepy, . . . sloppy and unproductive.”

In November, the company reported a 47% dip in profits for its fiscal 1987 first quarter ended Oct. 26. Net income slipped to $47,000 for the quarter from $88,000 for that period a year earlier. Sales dropped 9% to $13 million from $14.3 million for the previous year. Management has blamed the dismal results on a downturn in the restaurant industry. But Grace often pointed out that Rusty Pelican had lackluster fiscal 1986 earnings, as well, despite record sales for the year of $59.8 million.

Last fall, Grace furiously began buying shares of Rusty Pelican in several open-market transactions until he reached his current position of 203,000 shares--or 7.2%--of the company’s 2.8 million outstanding shares. At the same time, Grace requested a seat on the company’s board and publicly announced he was considering a takeover bid for control of the seafood restaurant chain.

All that evidently changed last week, however, after a meeting described by Siracusa as “very cordial.” Siracusa said Grace has expertise in the restaurant industry that could be helpful to Rusty Pelican. “And we have some knowledge that could help him,” added Siracusa, who owns 30.7% of Rusty Pelican shares.

Grace is the sole shareholder of Phelps-Grace, owner of five restaurant units in three states that had gross sales last year of about $10 million.

He said his attitude about Rusty Pelican changed after Siracusa brought “new information” to his attention, including that the company is testing point-of-sale computers which could lower labor costs.