Second Cup battle heats up

A battle is brewing for control of Second Cup after one of its minority shareholders moved Friday to oust Cara Operations executives from the board. Michael Bregman, whose family holds 24 per cent of Second Cup, said Friday he has called for a shareholder meeting to consider removing Cara chief executive Gabe Tsampalieros and Cara chairman Bernard Syron from Second Cup's board.

The Toronto Star
January 11, 2002

Second Cup battle heats up
Canadian Press

A battle is brewing for control of Second Cup after one of its minority shareholders moved Friday to oust Cara Operations executives from the board.

Michael Bregman, whose family holds 24 per cent of Second Cup, said Friday he has called for a shareholder meeting to consider removing Cara chief executive Gabe Tsampalieros and Cara chairman Bernard Syron from Second Cup's board.

Both men are the foodservice giant's representatives on Second Cup's board.

The action comes a day after Cara's takeover bid for the coffee-shop chain expired with just a handful of shareholders tendering to the offer, boosting Cara's holdings in Second Cup to 43 per cent from 39 per cent.

Cara, which owns the Harvey's, Swiss Chalet and Kelsey's restaurant chains, has extended its offer of $7.50 a share until the end of the day of Jan. 21.

"It was pretty clear this offer was not viewed as fair," Bregman said, adding that he won't tender his shares at this price and continues to examine if he can make an offer for the company.

"The time has come to have a board of directors at Second Cup where everybody is acting in the best interests of the company," Bregman said in an interview Friday.

"I think there's a clear view that neither Gabe Tsampalieros or Bernie Syron have been acting in the interests of Second Cup including when this all started as a hostile offer at an unfair price and it was a partial bid."

Second Cup's shares (TSE: SKL) closed Friday unchanged at $8, above the offer price.

Other groups are also considering offers, the company has said.

Second Cup's board has called Cara's bid unfair, noting it falls below an independent valuation of between $8.25 and $9.75 a share.

Originally, Cara made an unsolicited partial bid in August at $7 a share for three million shares, which would have boosted Cara's holding to 70 per cent.

Cara said its bid is fair and it doesn't plan to increase it.

Company executives weren't available for comment.

The company also said it doesn't plan to sell its shares, and that sends the message to any other possible bidder that Cara could be an obstacle in any takeover, said Paul Hancock, a partner with Investors Group, which holds about 17.4 per cent of Second Cup's shares.

"That's a very bad precedent and it reflects poorly on Cara," he said, adding it wouldn't be fair to other shareholders if Cara tried to block a higher bid.

Hancock said Investors Group is holding out for a higher offer or an improved bid from Cara, adding that a bid that's closer to the valuation range "has a much better chance."

Second Cup shareholders have sent the message to Cara to "pay a fair price or go away," said Ronald Mayers, the president of Genoa Capital, which holds four per cent of Second Cup shares.

Richard Haft, chairman of Second Cup's special committee looking at the bid, said other parties are looking through the company's books and he expects other offers to be made in the next few weeks.

Bergman has suggested he would make an $8.25 per share offer but said Friday he's reluctant to put a formal bid on the table without knowing whether or not Cara is willing to tender.

If Cara isn't willing to sell, "that probably means there's not much likelihood in someone else coming up with a higher bid," said Bill Chisholm, an analyst with Dundee Securities.

Without Cara's support, it would be much harder for an outside bidder to get 50 per cent to be a controlling shareholder, he added.

It would cost Cara about $5 million to increase its bid for the remaining six million shares to $8.25, Chisholm said. "For Cara it's not that much."

Hancock from Investors Group looked at it this way: "It's about the price of a Swiss Chalet restaurant."


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