Activist Investor Says Potbelly Is Taking Too Long to Sell Itself

Privet Fund Management LLC has stepped up its campaign against sandwich chain Potbelly Corp. (PBPB) , threatening Friday to nominate directors at the company's annual meeting.

"In order to best position the new leadership team to succeed, the board would be well advised to enable shareholder representatives to provide direct and ongoing input alongside the CEO to craft a strategy for the business," wrote the 5.2% shareholder in an amended 13D filing on Thursday.

Privet has until Feb. 10 to nominate directors to the Potbelly board.

The filing comes as the Chicago chain announced on Dec. 1 that Alan Johnson would take over as president and CEO. Johnson formerly held executive positions at PepsiCo (PEP) , Walt Disney Co.'s (DIS) Walt Disney Parks & Resorts, Regal Theaters and Pizza Hut International.

In February Potbelly retained JPMorgan Securities LLC to review strategic alternatives. At the same time, Aylwin Lewis the company CEO of six years stepped down. 

The firm takes issue with both the length of the strategic review and the company's decision to seek a replacement for Lewis during a sale process.

"It was imprudent to recruit a new CEO amidst the current backdrop of an adviser-led strategic review and the public discord between the company and certain of its large shareholders," wrote Privet, adding that the review likely limited the pool of would-be candidates.

To be sure, it should be noted that shares of Potbelly are up 11% over the past three months but have remained relatively flat since the appointment of Johnson. Privet revealed its stake in mid-November.

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Shares ticked up in October after Potbelly added Joseph Boehm of Cleveland activist fund Ancora Advisors LLC to its board and strategic review committee. It was thought that Boehm's addition would expedite a sale.

Potbelly confirmed on Dec. 1 that its review remains on-going and that JPMorgan continues to advise. The company did not respond to calls or emails seeking comment.

Though the company's review started in February, Wall Street had been of the belief that a sale would not come until the board appointed a new, permanent CEO. 

National Pizza & Wing Co., which owns Pizza Hut and Roark Capital-backed Jimmy Johns would be logical suitors, as would JAB Holding Co., which recently took Panera private. The possibility of privately held Firehouse Subs' owner, Firehouse of America LLC, has also been thrown around as a logical suitor.

Timing may have improved since February as private equity seems to be warming again to the restaurant segment. 

Apollo Global Management LLP (APO) is reportedly interested in buying Mexican restaurant chain Qdoba from Jack in the Box Inc. (JACK) . On Nov. 28 Roark Capital Group-backed Arby's Restaurant Group Inc. has agreed to acquire Buffalo Wild Wings Inc. for $2.9 billion in a cash and debt transaction.

In October Atlanta-based NRD Capital agreed to buy Ruby Tuesday Inc. (RT) for about $335 million.

As for Privet's campaign, its efforts are being led by managing partner Ryan Levenson who has tapped Kleinberg, Kaplan, Wolff & Cohen PC as counsel.

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