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Coffee Talk
Business Observer Friday, Nov. 2, 2007 12 years ago

Coffee Talk

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First the FBI, then lawyers, now stock crash: First, WellCare Health Plans in Tampa got a visit from the FBI last week.Shareholder seeks more money - and pancakes: Maple syrup was gushing down Wall Street Oct. 30 after shareholders of sit-down, casual restaurant chain Applebee's approved a $1.9 billion buyout offer from IHOP Corp.Found: A trio of buyers for high-end eateries: After a yearlong search, going as far as meeting with international prospects and running ads in the Wall Street Journal, the owners of a Sarasota-based conglomerate of high-end restaurants and grocery stores have finally found a buyer.

Coffee Talk

+ First the FBI, then

lawyers, now stock crash

First, WellCare Health Plans in Tampa got a visit from the FBI last week. Then it got something scarier: a lawsuit. And then it was hit with the Freddy Krueger of company terror - it's stock fell more than 60% in two days.

New York law firm Dreier LLP filed a class-action lawsuit in the U.S. District Court for the Middle District of Florida on behalf of investors who bought common stock of WellCare from May 8, 2006 through Oct. 24. The complaint alleges violations of federal securities laws.

WellCare provides managed-care services exclusively for government-sponsored health care programs, focusing on Medicaid and Medicare. The complaint alleges that the company misled investors by issuing false statements relating to WellCare's revenue, profitability and internal controls.

On Oct. 24, state and federal law-enforcement agents armed with a federal search warrant raided WellCare's headquarters in Tampa. The raid included agents from the Federal Bureau of Investigation, the Health and Human Services Department and the Florida attorney general's Medicaid fraud unit.

Upon news of the raid on WellCare's headquarters, the N.Y. Stock Exchange halted trading of the company's common stock, although not before the company's shares fell $7.10, or 5.8%.

When shares resumed trading on Oct. 25, the stock opened at about $64 per share and dropped to $42.67 by the close of trading. Between the news on Oct. 24 and the close of trading the following day, the company's stock dropped nearly 65%, on heavy trading volume.

+ Shareholder seeks more money - and pancakes

Maple syrup was gushing down Wall Street Oct. 30 after shareholders of sit-down, casual restaurant chain Applebee's approved a $1.9 billion buyout offer from IHOP Corp.

But Burton "Skip" Sack, a part-time Longboat Key resident who owns 2.4 million Applebee's shares - 3.2% of the company - wasn't in a pancake-eating mood. This despite a stake in the company that would be worth $61.2 million under the deal.

Turns out a week before the vote, Sack, Applebee's largest shareholder, filed notice in Delaware Chancery Court that he intends to sue for a higher sale price, in a rarely used process known as an appraisal proceeding. And this is no boilerplate activist shareholder lawsuit, where an unsatisfied shareholder sues to get a higher return: Sack is also on the Applebee's International Inc. board.

Board members normally don't bring court action like this, mostly because they are usually in line for a sizeable return when a company is sold. The appraisal process can also be time consuming and expensive, Sack has learned.

But Sack, a retired restaurant industry executive, one-time owner of multiple Applebee's and past president of the National Restaurant Association, called the $25.50 a share sale price in the Applebee's-IHOP deal both insufficient and rotten.

What's more, this deal was far from unanimous, both in the boardroom and with shareholders. In the boardroom, Sack was one of five directors to vote against the deal, joining Applebee's chief executive Dave Goebel in saying the company would be better off trying to fix its problems on its own, rather than sell for a low-ball offer. Sack's group lost the battle by a 9 to 5 vote.

Just over 70% of the company's shareholders approved the deal. Again, dissenters say the deal doesn't only undervalue Applebee's, it's decidedly short-term, as it's a cash-only proposal. "I was more for a mid-term plan," says Sack.

Sack hired a Wilmington, Del.-based law firm to bring any legal action, which can potentially include depositions and testimony from both sides, who will analyze stock prices in conjunction with the company's balance sheet. Sack's lead attorney, Travis Laster, didn't return calls seeking comment.

Sack, while declining to say exactly how much he thought the shares were worth, did point out that as recently as May, two months before the IHOP offer, the stock was worth at least three dollars a share more than the final sale price.

"I did this as a matter of principle," Sack says, "but I have a number of shares where it's worth my while to take this risk."

+ Found: A trio of buyers

for high-end eateries

After a yearlong search, going as far as meeting with international prospects and running ads in the Wall Street Journal, the owners of a Sarasota-based conglomerate of high-end restaurants and grocery stores have finally found a buyer.

A few buyers, actually. The conglomerate is Epicurean Life, the parent company of Morton's Gourmet Markets in Sarasota and Lakewood Ranch, as well as Fred's Restaurant & Ballroom, also with locations in Sarasota and Lakewood Ranch. Its buyers include a family returning to the grocery business after a 10-year absence, a prominent Longboat Key-based husband and wife restaurant team and a budding restauranteur.

"After an extensive national and international search," says Lee DeLieto, a commercial agent with Michael Saunders & Co. who brokered the deal, "we found the answer right here in our backyard."

Epicurean Life's owners, Sarasota entrepreneur Bill Griffin and his family, put the entire business, including many of the real estate holdings, up for sale in October 2006. Griffin was seeking $31 million for the entire package, although he said he would sell the pieces individually, too.

The latter option turned out to be the best bet, as the perfect combination of deep pockets and restaurant and grocery store know-how never materialized. Griffin - who took insurance company Riscorp public in 1996 and later was at the forefront of a company scandal that involved illegal campaign contributions, for which he ultimately served five months in federal prison - couldn't be reached for comment.

The only facet of Epicurean Life still up for sale is the Lakewood Ranch Morton's Market. The other trio of deals for three separate portions of the Epicurean Life portfolio came together the last week of October, after several months of negotiations.

And, all of the purchases involve only the rights to run the businesses, not the actual real estate.

No one would disclose sale prices. But, mostly because the deals didn't involve the real estate, the final number was far lower than $31 million, DeLieto says.

What the trio of buyers did talk about was their intentions to put their personal touches on their new businesses. The Epicurean Life buyers include:

• Eddie Morton, who along with his father Ted Morton, and his son, Todd Morton, bought Morton's Market in Sarasota, on Osprey Ave., a few miles from downtown;

• Tommy and Jaymie Klauber, owners of Pattigeorges, a popular Longboat Key restaurant, bought Fred's Restaurant & Ballroom in Lakewood Ranch. ;

• Jordon Letschert, a Sarasota native whose uncle, Titus Letschert, runs two Sarasota area restaurants, bought the Fred's in Sarasota.

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