Tuesday, July 31, 2007

Letter fly

This is a bad time to be a postman with an undervalued restaurant company on your route. Letter writing is supposedly a dying art, but activist shareholders apparently haven't followed the rest of the world in abandoning the quill for e-mail. As this week clearly showed, they're sticking with the pen-and-paper mode of communicating with the companies they badger. Monday and Tuesday brought the sort of missives you'd expect to consist of words cut from a newspaper and Scotched Taped together. It's amazing that the notes from Luby's and Wendy's frustrated investors didn't singe their envelopes.

The letter to Wendy's, of course, came from Nelson Peltz, who's emerging as one of the industry's most prolific correspondents. Just a few weeks ago, he sent Wendy's chairman Jim Pickett a mash note about how their respective restaurant companies were made for one another—a "natural," Peltz wrote. The company that operates his Arby's business is the logical suitor for a chain of Wendy's breeding, style and physical attributes. Why not foster a marriage by facilitating an acquisition by Peltz?

Oh, and by the way, he added: Deal with us or we might consider alternative means of adding you to the family. A hostile takeover, perhaps?

Peltz dipped his pen into the inkwell again this week to let Pickett know he's ready to push matters forward. Peltz said he had a purchase price in mind that should fall between $3.2 billion and $3.5 billion. If, that is, Wendy's would stop trying to hush-hush Peltz's Triarc Cos. with confidentiality agreements. Peltz is a man who apparently likes to have his intentions known. Small wonder that his letter to Pickett was included in a securities filing, where it could be seen by every major business medium in the country. And, indeed, most of them gave it prime coverage.

That might make Jeffrey C. Smith feel like a kid whose birthday falls on Christmas. On Monday, he sent a letter to Luby's CEO Chris Pappas that should have had Peltz shouting, "Bravo!" Smith, a partner with the New York investment concern Ramius Capital Group, told Pappas that Luby's should consider selling itself, or at least peddling its real estate and passing some of the proceeds along to shareholders.

Smith also let Luby's know that Ramius didn't appreciate the second jobs Pappas and his brother hold at their privately owned company, Pappas Restaurants. Chris serves the 70-plus-retaurant operation as COO, while his brother Harris holds the CEO's post. How can they focus on running Luby's when they're moonlighting?

What's more, Smith wrote, several of Luby's executives and directors also work a second job at Pappas Restaurants. Sounds like a conflict of interest to us, snipped Smith.

It was the sort of aggressive, pointed communication that Peltz probably fires off all the time to noisy neighbors or businesses that leave him displeased. And, like Peltz's missive, the Ramius letter complemented a securities filing. It was also touted in a press release. On any other day, it would have been a M-80 of an attention-getter. But, coming on the same day as the more prominent gadfly's scolding, it seemed more like a cap pistol.

Of course, the correspondence between invest-ee and investor isn't over for either letter writer. We can also expect more noteworthy pen work from activists like Sadar Biglari, whose letter to shareholders earlier this year is a classic.

Which makes you wonder if postmen communicate amongst themselves about what they're lugging to the CEO's office.

"Another Peltz special?" one might ask a colleague holding a smoking letter.


"Wanna borrow the asbestos pouch again?"


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