Activist investor Ancora making a bid for Southern restaurant chain J. Alexander's

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Activist investor Ancora Advisors announced on Monday a takeover bid for J. Alexander’s Holdings, a Nashville-based restaurant chain, according to a letter filed with the Securities and Exchange Commission.

Ancora, which already owns about 1.3 million J. Alexander’s shares, offered to buy J. Alexander’s for $11.75 per share in cash, or $186 million. The figure represents a 24% premium to the share price on March 12, when Ancora first disclosed its stake in a government filing.

Ohio-based Ancora, which manages $6.5 billion in assets, said it plans to finance the transaction with a combination of cash equity and debt financing from third-party lenders.

Activist investors take stakes in what they view as undervalued companies with the goal of agitating for changes they hope will unlock shareholder value. Those demands can range from management replacement and board seats to spin-offs or merger proposals.

But for J. Alexander’s, Ancora believes the company’s problems first arose when it returned to the public markets in September 2015.

As part of its spin-off deal with Fidelity National Financial, J. Alexander’s agreed to hire Black Knight Advisory Services, a management consulting firm whose principal member is William Foley II, the chairman of Fidelity National Financial.

The arrangement “allowed [Fidelity National Financial] and management to continue to skim more value for themselves at the expense of shareholders,” Ancora Advisors Chief Executive Officer Frederick DiSanto wrote in a letter to J. Alexander’s board.

Under the terms of its agreement with Black Knight, J. Alexander’s was required to pay Black Knight an annual fee of 3% of its adjusted pre-tax earnings in exchange for “‘corporate and strategic’ services.” Including a $4.56 million payment at the end of the arrangement, Black Knight made more than $7 million from its accord with J. Alexander’s, the letter adds.

Fidelity National Financial did not immediately respond to CNBC’s request for comment. J. Alexander’s Chief Financial Officer Mark Parkey did not immediately respond to CNBC’s request for comment.

The activist also criticized an August 2017 attempt by J. Alexander’s to merge with Ninety Nine Restaurants, a casual dining enterprise owned by a subsidiary of Fidelity National Financial. Ancora described the proposed marriage as “riddled with conflicts of interest” with members of the J. Alexander’s board on both sides of the transaction.

Institutional Shareholder Services, a proxy advisory firm, also opposed the deal at the time.

“The board does not appear to have thoroughly explored other alternatives, which is particularly concerning given the related party nature of the transaction and the tenuous strategic rationale for the proposed combination,” ISS told stakeholders in 2017, according to a Barron’s report.

Mario Cibelli, the founder and portfolio manager of fellow activist firm Marathon Partners, successfully campaigned against that deal as a leading stakeholder. Marathon owned more than 5% of the company as of the end of 2018.

J. Alexander’s, which operates 48 restaurants under multiple brands mostly in the southeastern U.S., closed Friday at $10.44 per share. That represents a decline of about 10% since the company’s initial public offering in 2015.

Still, the company is not without some merits, Ancora’s DiSanto said in his letter to the J. Alexander’s board.

The company has growth revenue of 14% and operating cash flow of 25% since returning to the public market, the CEO wrote. Also of benefit, he added, is that J. Alexander’s owns almost 40% of its real estate, often a key expense for restaurant chain operators.

Currently, J. Alexander’s oversees J. Alexander’s, Redlands Grill, Stoney River Steakhouse and Grill, and Lyndhurst Grill.

“The current board is not independent and the self dealings has clearly hurt the independent shareholder,” DiSanto said in a separate message to CNBC. “Ancora believes the shareholders, company, and employees would be much better off if the company was private.”

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