Less than two weeks after casting aspersions against its largest unitholder, the SIR Royalty Income Fund , which distributes revenue royalties from restaurants such as Jack Astor’s, has advised its investors to vote him onto its board of trustees.
The fund recommends that investors vote Lembit Janes, the former chief executive officer of Janes Family Foods, and two nominees he hand-picked onto the board at the fund’s annual general meeting on June 29. This ends a dispute, mostly waged through press releases, between Mr. Janes and the fund. The feud began in January when the fund was subject to a takeover bid from SIR Corp., the restaurant operator from which the fund distributes royalties.
With patrons returning to patios at SIR restaurants in Ontario, the trust will soon resume cash distributions that were curtailed last year because of the pandemic.
If Mr. Janes and his nominees are elected, they will have significant influence on the board, which will be expanded to seven members as part of the settlement agreement. The agreement was announced June 14, just weeks after the fund said Mr. Janes had a “demonstrated history of litigiousness and disruption” and a “lack of clarity as to his true intentions.”
Mr. Janes retired from Janes Family Foods, best known for its frozen chicken strips, when it was taken over by Sofina Foods Inc. in 2012. He declined to be interviewed.
“The fund, SIR and Mr. Janes have negotiated a full settlement of the matters at hand,” Bruce Wigle, a spokesman for the fund, said in a statement. “The fund and SIR consider the matters to have been settled in the best interests of all of the unitholders. We look forward to working constructively to enhance unitholder value with proposed new slate of diverse trustees.”
The fund, which is publicly traded on the Toronto Stock Exchange, has a partnership with the privately held SIR, which operates chain restaurants including Jack Astor’s, Scaddabush Italian Kitchen, Canyon Creek Chophouse and Reds Wine Tavern. The fund pays unitholders monthly distributions that come from restaurant revenues. Jack Astor’s restaurants make up the majority of the 51 locations in the royalty pool.
In March, 2020, the fund halted its monthly distributions to unitholders because of COVID-19 restrictions that shut down indoor dining across Canada. Ten months later, SIR made a proposal to buy the fund in a cash deal at $3.55 a unit, a value of approximately $29.7-million. Mr. Janes objected to the deal, saying the proposal “greatly undervalues the fund” since its trading price had plummeted by more than 50 per cent during the pandemic.
Mr. Janes, who owned just under 10 per cent of the fund’s outstanding shares in January, made a mini-tender offer to other unitholders on Jan. 27: He would buy 825,000 units at a price of $4.25 a unit. A week later, he raised his offer to $4.75 a unit, a 33.8-per-cent premium to SIR’s proposal.
The fund criticized the mini-tender for coming at a time when the units were trading at a relatively low price. It also criticized the size of the offer.
“If completed, Janes would own approximately 19.5 per cent of the units,” the fund wrote in a January press release. “Mini-tender offers are designed such that the acquiror will hold less than 20 per cent of an entity’s outstanding equity securities, avoiding disclosure and procedural requirements applicable to most bids under Canadian securities regulations.”
Ultimately, Mr. Janes acquired more than 320,000 units from the mini-tender, amassing a 13.8-per-cent stake. SIR dropped its bid for the fund in February, and disclosed that it has discussed buying the fund since July, 2020.
Mr. Janes pushed on after SIR dropped its bid, buying more units, and criticizing SIR for its continued halt on distributions.
“The trading price of the fund has been negatively impacted by the decision of SIR and the trustees of the fund to stop all distributions, which I believe makes the fund the only TSX-listed restaurant royalty company to have abandoned its distribution commitments,” he wrote in February. The fund said SIR had to halt distributions in order to waive various covenants with its senior lender, Bank of Nova Scotia, which the fund is subordinate to.
Restaurants such as Boston Pizza, A&W and The Keg Steakhouse also distribute royalties to income funds. The funds for Boston Pizza and A&W paused distributions for several months. The Keg has reduced the size of its distributions twice during the pandemic.
In April, after accumulating 18.7 per cent of the fund’s outstanding units, Mr. Janes announced in a press release that he had “lost confidence” in the fund’s three-person board of trustees, all of whom had held their positions since 2004.
“Regardless of whether they were truly independent in 2004, after 17 years it is simply time for a change,” he wrote. “SIR has acted in what Mr. Janes believes is a clearly self-interested manner to the detriment of the unitholders, and the independent trustees have not done enough to protect unitholders.”
He nominated himself and two recently retired executives, Stephen Dewis and Michael Lee Fisher, to replace the incumbents. Mr. Janes also earned the support of Bill Irvine, the fund’s second-largest independent unitholder, who owned 12.34 per cent of the fund’s units in early June.
At the end of May, with provinces preparing to loosen COVID-19 restrictions, the fund announced it would begin to make royalty payments on its sales starting on July 7. It also set a goal of repaying deferred royalties by July 6, 2022, when a long-standing credit agreement it has with Scotiabank matures.
On June 2, the fund was critical of Mr. Janes, saying he “improperly besmirched the incumbents’ integrity and independence,” and called him litigious and disruptive. They did, however, say it would “be reasonable” to have a significant unitholder like Mr. Janes represented on the board. Twelve days later, the fund and Mr. Janes settled the dispute.
As of June 1, Mr. Janes owns 19.66 per cent of the fund’s outstanding units.
“I look forward to working with the other trustees and the SIR Corp. team to enhance unitholder value,” he said in the fund’s press release about the settlement.
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