Luby's seeks sale of all assets to clear debt

Dive Brief:

Luby's intends to sell its assets, including real estate assets, and distribute the sales proceeds to shareholders after clearing its debts, according to a company release.
The cafeteria chain is open to being acquired in its entirety but would sell its holdings, which include Luby's Cafeteria, Fuddruckers and a contract management company called Culinary Contract Services, separately if needed. Luby's board will create a timeline for the sales, which are subject to shareholder approval.
"We believe that proceeding with this sale process followed by distributions contemplated under a proceeds distribution plan will maximize value for our stockholders, while also preserving the flexibility to pursue a sale of the Company should a compelling offer that delivers superior value be made,” Luby’s CEO Christopher Pappas said in the release. “This path also provides for the potential to place the restaurant operations with well-capitalized owners moving forward."

Dive Insight:

Luby's pursuit of a sale, either through piecemeal deals or a complete acquisition, follows a challenging season for the restaurant company.

Activist investor pressure has weighed heavily on the chain before it won shareholder support in a proxy fight with Bandera Partners in January 2019. Bandera owns 9.8% of Luby's stock, and has pushed the company to trim its significant debt and improve dwindling revenue. In September, the company began exploring strategic alternatives.

At this point, a sale or series of sales seems necessary. Luby's closed 30 restaurants across its brands as of last July, and retains only one unit of a third restaurant chain, Cheeseburger in Paradise. The pandemic further undermined performance, and Luby's shared in its company release that the board's special committee took the current COVID-19 climate into consideration. In late March, Luby's closed 35 of its 72 restaurant locations that were operating at the beginning of COVID-19's impact on the U.S., according to Restaurant Business.

Luby's isn't the first struggling chain to buckle under the economic pressure of COVID-19. Le Pain Quotidien’s U.S. arm filed for Chapter 11 bankruptcy last week and plans to sell itself to Aurify Brands, subject to court approval. The chain also sold its 26 units in the U.K., which was at risk of bankruptcy in April. Even though many states are easing dining restrictions as COVID-19 cases decrease, the coronavirus situation is still very dynamic — with some experts predicting a second spike in cases this fall — and could push additional chains to put themselves up for sale.