Unhappy Stock Owners Say Denny's Is No Grand Slam
By VITO RACANELLI
Denny's, the family restaurant chain known for its Grand Slam breakfast, is having a most unfamily-like proxy war.
Dissident shareholders are saying they can improve stock performance by cutting costs and allocating the company's capital better than the current management.
After canvassing a number of large and small institutional shareholders both supportive and critical of CEO Nelson Marchioli, Barron's concludes the dissidents are supported by stockholders of as much as 35% of Denny's shares outstanding, which would give them at least one of the three board seats sought in the May 19 vote. How many are won will depend on a few very large institutional holders, which together own about 75% of Denny's stock.
Dash Acquisitions, representing dissident holders of 7.1%, has said in SEC filings that the chain's "failed growth" strategy resulted in a 19% drop in guest traffic and a steady decline in same-store sales in recent years. Denny's stock has significantly underperformed its peers since 2004.
On May 6, a leading proxy advisory group, RiskMetrics Group, recommended shareholders vote for Jonathan Dash, one of three dissident nominees for board seats, saying, "Given the performance issues at Denny's...dissidents have made a reasonable case for change."
RiskMetrics did not recommend that Mr. Marchioli be removed from the board. And Denny's management received support from two other such advisory services, Glass Lewis and Proxy Governance.
In an interview, Denny's Chairwoman Debra Smithart-Oglesby disputes Barron's assessment of dissident support, but declines to give an estimate, saying she's "confident" shareholders back management.
In the same interview, Mr. Marchioli says Denny's is moving to a "long-term value strategy" to win back blue-collar customers. He adds that the company has paid down some 50% of its debt—which stands at $279 million—since 2005.
Denny's contends the dissidents are attempting to take control without paying a premium for the stock, and notes that the shares have outpaced peers in the nine years since Mr. Marchioli's arrival in 2001.
Last week, Denny's reported first-quarter profits of five cents a share, topping the four cents earned a year earlier. But same-store sales fell by about 6% and guest traffic fell again as well.
Should the dissidents win two or three board seats, the company's strategy is likely to change—probably for the better. If they don't get any, pressure on management could peter out. However, a dissident victory of just one seat could result in an extended boardroom tussle, not good for franchisees, management or shareholders.
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