Luby's Digs in for a Proxy Pummeling

Luby's (NYSE: LUB  ) would like to thank Uncle Sam for making the restaurant chain's profits look good this quarter. Couldn't have happened at a better time.

The IRS completed one of those dreaded tax audits on the company, covering the 2000, 2001, and 2002 fiscal years. The company did nothing wrong back then, so the Tax Man returned $2.8 million of contingency-dependent fees and closed the case. If it hadn't been for Cotton Eye ... sorry ... for that tax credit, net income would have stopped at $2 million this time.

The one-time boon could be very welcome to Luby's board of directors, as the company is embroiled in a proxy battle. Four of the 10 board seats are up for election at the annual shareholders' meeting in a couple of weeks. Ramius Capital, a private equity group with activist leanings and an 8% stake in the company, has presented a list of grievances with the current board and sent out a competing proxy card.

Clearly, Luby's management is feeling the pressure, as the quarterly report seemed designed to defuse Ramius' claims. For example, Ramius noted that same-store sales have dropped three quarters in a row. Luby highlighted improvements in same-store profits, and you had to look deeper in the statement to find yet another same-store sales drop. Ramius complained that only one new store has been opened in the last seven years, so management expounded on how Luby's has been looking for new sites and even started on some construction.

Not that the opposing slate of directors looks like a bad deal: two former big shots from Wendy's (NYSE: WEN  ) , the current CEO of privately held burger joint Fuddruckers, and a serial board buff. They'd replace a real estate lawyer, an advertising expert, an accountant, and one seriously qualified advisor.

If I were a Luby's shareholder and wanted some fresh blood in the steering committee, I might take the first three usurpers and leave out Bill Fox in favor of Judith Craven. She's a longtime director of food-service giant Sysco (NYSE: SYY  ) , has seen Luby's from the inside for nearly a decade, and was part of the board that led Compaq through the merger with Hewlett-Packard back in the day.

Luby's did make some progress this quarter, but it still fell short of mending the ills that Ramius wants cured. The proxy fight is only weeks away, so we'll soon see if this was enough.

Read up on proxy warfare:


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