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Blowback City: Denny's Fuels a Shareholder Revolt by Lashing Out

With its annual meeting coming up in May, Denny's has fired back against the renegade shareholders who launched a proxy fight last month seeking to unseat current board members and oust the CEO. While many proxy battles are unsuccessful and essentially go away if ignored, Denny's has fueled the fire by sending shareholders an elaborate, eight-page, point-by-point rebuttal of the renegade proxy. Its message: unhappy stockholders Oak Street Capital Management and Dash Acquisitions don't know the company and are essentially talking out their collective ass.

Couldn't they have said that in a single terse page?

By going on at such length about the issues the disgruntled shareholders raised, Denny's only gives the opposing view more air time with shareholders. Compounding the problem, Denny's comes off as defensive and nervous about the headway the alternative proxy may be making with stockholders in its April 14 letter. The letter says the "Dissident Group" has "uninformed views," is "just plain wrong on the facts," and stresses that their investment in Denny's is recent -- as if it takes a long time to read the company's financials and realize Denny's has been floundering.

Denny's then shares its conspiracy theory on the reasons for the takeover. Without giving any examples, Denny's says the dissidents have a history of buying companies like Denny's through proxy fights, avoiding paying shareholders, and then exploit their purchases as mere assets to leverage other acquisitions. "Do not allow a group of hedge fund managers to threaten our progress and use your Company to serve their own personal agenda," the write. If that's true and you're going on for eight pages anyway, you'd think Denny's could spare a sentence or two to detail previous instances where the funds used this maneuver.

Inexplicably, the company takes the time to respond to some points raised by Oak and Dash without offering any concrete facts that disprove the claim. For instance, countering the accusation that Denny's has been selling off company-owned restaurants to franchisees at fire-sale prices, Denny's says only that the prices "achieved above industry average sales multiples."

Oh come on! What about providing some real numbers, if the sale prices were really so good?

In case any shareholders are missing the drift of Denny's feelings about the Dissident Group, a bolded line notes the current board "has not taken a position that any of the proposed nominees by the [Dissident] Committee have meaningful experience or strategic insights that would be beneficial to the Denny's Brand or the franchise community."

As a final, panicked shot, the letter notes that voters can revoke their vote for the gold proxy card submitted by Oak and Dash by sending in the company's official, white proxy after the fact. More likely, additional shareholders are now taking out that gold proxy and giving it another read.

Photo via Flickr user OiMax