The Knives Come out at Benihana

If this article isn't proof of what's wrong in the restaurant industry, I'm not sure I know what is.

The piece talks about a food fight between the several factions who own the Benihana chain. On one side are the children of Benihana founder Rocki Aoki and Coliseum Capital Management, which owns around 10% of Benihana's stock. Apparently Benihana management is looking to issue between 12.5MM-25MM new shares of common stock following a merger with a subsidiary. Management claims they need to do this in order to raise capital, resist the economic downturn, and deal with some outstanding credit issues. The measure passed on February 23rd despite the opposition; there is no word yet whether the disgruntled parties will resort to legal redress.

The family says the stock issue will dilute their influence on the direction of their father's creation, and undermine the value of their shares. Naturally, the company that controls the chain (BFC Financial Corp., the second-largest stockholder) has no problems with the issue, and why should they? There's a nifty anti-dilution protection written into their agreement that will mean the influence of their share won't be hurt, and will by default increase. Even the company's SEC filing admits other investors will be "adversely affected."

That's what you call a "ginned game."

The widespread ownership of the restaurant industry by private equity groups and other financial entities can be a mixed bag for the business. On the one hand, PE guys tend to be more entrepreneurial than traditional foodservice people. They understand making money and taking risks. But they also know how to work the system, so right now, Benihana is focused on stock manipulation, not on improving its competitive position. Would I consider representing the brand?

Not until this issue gets settled.

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