The Wall Street Journal-20080130-Restaurateurs Take Bigger Slice of Luby-s- Pappases Lift Stake As Dissident Group Loses Proxy Fight

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Restaurateurs Take Bigger Slice of Luby's; Pappases Lift Stake As Dissident Group Loses Proxy Fight

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Fresh off a victory in a turbulent proxy fight with a dissident shareholder, Luby's Inc.'s top two executives made the largest stock purchase on record by the restaurant chain's insiders.

President and Chief Executive Christopher J. Pappas and his brother, Chief Operating Officer Harris J. Pappas, bought a total of $5.4 million in shares of the Houston company last week, just one week after shareholders favored management-backed board nominees over candidates supported by an activist hedge fund.

After the latest stock purchase, the brothers hold a combined stake of 28.6% in Luby's, with each owning more than four million shares, including options. In October, the company amended its poison pill to increase a restriction on the Pappas brothers' ownership to 33% from 28%. A shareholder-rights plan, commonly known as a poison pill, is designed to make a threatened takeover more expensive through the issuance of huge amounts of stock.

Luby's spokesman Rick Black said the brothers, who joined Luby's management in 2001, "helped turn this company around" and continue to invest a lot of their own capital in the company. Mr. Black said their latest stock purchase reflects their faith in Luby's plan to open 45 to 50 new stores during the next five years.

"The Pappas brothers are both confident in our growth strategy and Luby's ability to move forward," Mr. Black said. "They're large shareholders and they feel that their interests are aligned with all shareholders."

Mr. Black said neither Pappas brother was available for comment.

The brothers opened their first restaurant in 1976 and now run Pappas Restaurants Inc., a closely held company that holds Luby's shares and includes the restaurant chains Pappadeaux Seafood Kitchen, Pappasito's Cantina and Pappas Bros. Steakhouse.

Leading up to the company's annual meeting this month, the Pappas brothers and Luby's board faced harsh criticism from Ramius Capital Group LLC, a hedge fund founded in 1994 by former Shearson Lehman Chief Executive Peter Cohen that owned about 7.5% of the company's shares. Luby's rejected Ramius's criticism. Luby's said it would submit a proposal to declassify the board at its annual meeting next year, and said the Pappas brothers would support the proposal.

On Jan. 15, shareholders re-elected the company's nominees. Last week, Ramius disclosed that it had reduced its stake to 4.5%.