Shareholder activism ramped up locally in 2012

Area showdowns mirrored rise in investor activity nationally

The economy may have warmed up a bit in the past year, but that didn’t provide much solace to a growing number of beleaguered executive teams at Nashville-area public companies. Several of the region’s most high-profile names found themselves being called unconscionable, cavalier and unqualified by some of their biggest shareholders.

The local showdowns mirrored a rise in investor activism nationally. They were an indication that, years after the official end of the Great Recession, many investors think a number of companies are still not firing on all cylinders and that patience is running thin with management teams unable to separate themselves from the pack.

Some of the local disputes were resolved relatively elegantly — that is, by essentially cutting a big check — while others are still awaiting a final act. Here’s an overview:

• Two hedge funds teamed up early in the year to pressure Corrections Corporation of America to convert into a real estate investment trust. After the company’s execs said they’d consider doing just that and the shares rallied 20 percent in the ensuing few months, the managers of Corvex Management and Marcato Capital said thanks and bid their adieus.

• The former Gaylord Entertainment finally fought off Texas billionaire and Omni Hotels boss Robert Rowling in a two-part buyout. Rowling, who began ruffling feathers at Gaylord in 2008, was paid a handsome profit for his 20-plus percent stake after protesting management’s plan to unload its hotels to Marriott International and also convert into a REIT.

• The most high-profile battle was really Round Two of a bitter fight. Sardar Biglari, who runs the holding company that runs Steak ‘n Shake and other dining concepts, in November lost a second bid to land on the board of Cracker Barrel Old Country Store. Biglari (pictured) soon after signaled he isn’t giving up the fight just yet — in mid-December, he spent another $31 million to build his stake in Cracker Barrel to a shade under the company’s 20 percent “poison pill” threshold.

• The managers of Atlanta-based Privet Fund essentially pushed J. Alexander’s management into the arms of Fidelity National Financial, the holding company that was spending $210 million to buy O’Charley’s. Privet first declared a sizable stake in J. Alexander’s in late 2011 — after the company already had begun the confidential process of seeking bidders — and said it wanted major strategic and governance changes.

Fifteen days after Fidelity National announced its plan to buy O’Charley’s, representatives for J. Alexander’s Chairman and CEO Lonnie Stout placed a call to the company. Four months later, the two companies announced a deal for $12 per share. But the action had just begun; Privet soon sued over a bylaw tweak it says shortchanged investors’ ability to vet the sale, and a handful of other bidders emerged to begin bidding up the purchase price. By late September, Fidelity National took control of J. Alexander’s, having paid $14.50 per share, and Privet’s managers had withdrawn their objections, satisfied with a hefty profit on their 9 percent stake.

• Still unresolved along with Cracker Barrel’s Biglari battle is Advocat’s tussle with a Georgia-based investor group that has offered $8.50 per share for a Brentwood-based nursing home operator that hasn’t traded above $8 since January 2010. Covington Investments says it can greatly improve Advocat’s performance, but investors haven’t shown any interest in joining its push.

No doubt a few other local CEOs wish they were so lucky.