Tuesday, March 13, 2007

Once and future kingpins

Geez, who knew he’d be this sensitive? Toss a few barbs at a billionaire gadfly and he high-tails it into another trade—across the Atlantic, no less. Yet there it was, all over today’s wire services, one story after another about Nelson Peltz buying a 3 percent stake in the United Kingdom’s Cadbury-Schweppes sugared-treats conglomerate. With his attention focused outside the restaurant industry, Peltz, an investor mentioned a time or two in this space, may be ceding his distinction as the most-feared shareholder in foodservice.

But fret not, green-mailing toadies. Left to help your portfolios are plenty of other militants willing to bully restaurant companies into a live-for-the-quarter mindset. It’s not a matter of whether they’d fight for changes that boost stock prices in the short run, with no regard for the long term. All that’s left to be decided is what color shorts they’ll wear into the ring.

The leading contenders for Peltz’s crown include William Ackman, who has re-purchased a sizeable chunk of McDonald’s. And then there’s Richard Breeden. Much of our online news coverage in recent weeks has focused on Applebee’s attempts to appease the hedge-fund manager, who wears a brilliantly white hat because he once served as chairman of the U.S. Securities and Exchange Commission. His demands don’t sound outlandish, either. Franchising is a core strength of Applebee’s, which was carefully, purposely crafted by Abe Gustin to be a model licensor for the industry. Breeden wants it to franchise more and run restaurants less.

He’s also hammered management for indulgences like the use of a corporate aircraft to zip down to Galveston, Texas, some 29 times last year. Applebee’s doesn’t have a restaurant within 40 miles of the place. But former CEO Lloyd Hill does have a beach house. There, too, his demand isn’t unreasonable, though a tad nit-picky, given how often the company jet might have enabled Hill to sandwich business matters between reasonable familial commitments.

No, Breeden doesn’t sound like he’s cut from the same bolt of cloth used to make Peltz’s designer suits.

But then there’s Sardar Biglari, chairman of Western Sizzlin Corp., a collection of regional family steakhouse chains, and a 15-percent stakeholder in the parent of the family-oriented Friendly’s regional chain. Biglari has been very critical of Friendly’s management, which is led by yjr legendary Don Smith, perhaps best known as the man who gave the go-ahead for Pizza Hut’s Personal Pan Pizza when he was leading that brand. He was also a one-time president of Burger King.

Biglari is aghast that Friendly’s stock price has languished. Like Breeden, he wants more franchising from his investment. But, unlike Applebee’s, Friendly’s was founded as a restaurant operator, not a franchisor. Indeed, it came to licensing relatively late in the game.

Biglari is also upset about governance matters, again like Breeden. And, like the former SEC chief, he’s hoping to change things by securing seats on his investment’s board. His mark of distinction is how he’s gone about it. In addition to the now-routine techniques of sending letters to fellow shareholders and publicly criticizing the current board, Bilgari has forged the new activist weapon of going to the company’s employees. Local media reported last week that he had placed ads on billboards around Friendly’s headquarters in the Boston area, asserting that a change in management would be better for the headquarters staff, too.

Brilliant, just brilliant. It must make Peltz feel like Joe DiMaggio did when he saw a kid named Mantle take batting practice.

I’ll miss you, Nelson. But it’s never too late for a comeback.


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