Shares of Red Robin Gourmet Burgers (NASDAQ: RRGB) sprung as much as 31.1% higher on Thursday morning, driven by an activist investor firm suggesting a review of strategic alternatives. By 11:50 a.m. EDT, the stock had retreated to a 29% gain.
A letter sent to the burger chain's board of directors by Orlando-based Vintage Capital also included an offer to buy the company at $40 per share -- 57% above Wednesday's closing price. The firm already owns 1.5 million shares of Red Robin, which works out to roughly 13% of the stock's public float.
"Our sincere hope, as explained to members of the Board on a number of occasions, was to work collaboratively to recruit an 'A+' operator to accept the CEO role and lead Red Robin back to greatness," the letter said. Vintage also noted that many high-quality CEO candidates appear unwilling to take the job due to Red Robin's "disastrous operating and market performance" and questionable leadership from the board of directors.
Image source: Getty Images.
Vintage Capital also expressed frustration with Red Robin's decision to implement a poison-pill policy last week rather than embrace a value-boosting search for new leadership and/or a buyout. The firm made it crystal clear that it believes every solution to Red Robin's problems would require a complete overhaul of the boardroom, and that attitude is likely to set the stage for a vicious proxy fight. After all, the current board members are not likely to agree that they're doing a bad job and should be replaced.
That being said, I actually like what Red Robin is doing to its omnichannel order-and-delivery platform these days, and the stock is still trading at just 6.6 times its trailing free cash flows. With or without Vintage Capital's strategic makeover ideas, I wouldn't mind buying the stock at these low prices.
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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of Red Robin Gourmet Burgers and has the following options: short June 2019 $40 calls on Red Robin Gourmet Burgers. The Motley Fool has a disclosure policy.