Benihana Faces Shareholder Suit: Investment
Firm Cites Lack of Management Experience
Michael Huber 
Business Section, Page 5B
November 28, 1989

A New York investment banking firm wants to replace the management of Miami-based Benihana National Corp.

The restaurant chain's stock has sunk to less than $2 a share from more than $20 in four years, and Laidlaw Holdings says an inexperienced and conflicted management is to blame.
After determining that it couldn't win a proxy fight, Laidlaw Holdings has decided to file a shareholder suit.

Laidlaw's attorneys were drafting the complaint Monday night. Manuel Asensio, an investment banker at Laidlaw, said the action would be filed before Benihana National Corp.'s annual shareholders' meeting, which is scheduled for 10 a.m. today at the Doral Country Club.

The heart of the problem, Asensio said, is the overlapping management of publicly owned Benihana National Corp. and privately owned Benihana of Tokyo Inc.

Benihana founder Rocky H. Aoki is chairman and controlling shareholder of the public company. Aoki owns all of the private company. The companies share key managers.

"We feel the public company should have its own management, its own business plan and its own accountants," Asensio said.

Benihana President Joel A. Schwartz responded, "There's no substance to that. Benihana National Corp. has only benefited
from its association with Benihana of Tokyo."

The public company, created as the vehicle for a 1983 stock offering, owns the Benihana trademark and operates 22 of the chain's 50 Japanese restaurants. The 25-year-old private company owns 19 outlets and manages nine others.

Laidlaw wants to put one of its clients, Tom Dilk, in charge of the public company. Dilk, a New York investor, founded P.O.P. Radio Corp., which sells advertising space on Muzak tapes. More important, Asensio said, Dilk has what current management lacks -- restaurant experience.

"Our problem is not with Schwartz as a financial man but as a restaurateur -- as which he has no experience," Asensio said.

Schwartz was an accountant with Touche Ross & Co., which serves as outside auditor for both Benihana National Corp. and Benihana of Tokyo.

Schwartz said there's a simple answer to such complaints: "The company's profitable."

In the year ended March 31, the company had net income of $1.7 million, or 30 cents a share, on revenues of $35 million. The previous year, it lost $6.4 million on sales of $33 million.

Asensio said Laidlaw has tried for a year to come to terms with the company's management.

"We buy into companies -- that's what we do -- and we never have problems with management. This is the first time," he said. "Usually, they understand that we are in for the long haul. We are active shareholders."

The clearest evidence of mismanagement, Laidlaw says, is the public company's ill-fated forays into frozen food and seafood restaurants.

The frozen food lines, Oriental Lites and Famous Restaurant Classics, were launched in 1984 and folded three years later. The venture into non-Japanese eateries, the two-unit Big Splash Seafood Emporium chain, was begun in 1985, and it, too, folded after three years.

The frozen foods couldn't compete with the entrenched market leaders, particularly Stouffer's.

The seafood restaurants were crushed by extraordinarily high overhead. The annual revenue at each outlet fell about $1 million short of the $2.5 million break-even point.

The total loss from the frozen food and Big Splash experiments was at least $18.55 million, according to a research report this month by JW Charles Securities Inc.

Nonetheless, Robert M. Willoughby, who tracks Benihana for JW Charles, is optimistic about the company's future.

"They have some expenses they have to get under control," Willoughby said Monday. "But their expansion plans are a lot safer than in the past. They're not going to get burned again."

The Hibbard Brown & Co. brokerage also ranks Benihana as a "very attractive" investment.

Like JW Charles, Hibbard Brown supports Benihana's plans for cautious growth.

The company wants to add only two or three restaurants a year. It also is taking two new products to market while putting very little of its own capital at risk.

One is the Benihana Cafes, which are smaller and cheaper to operate than the full-scale restaurants. The other is a line of gift-boxed gourmet foods that are marketed to corporations for use as premiums and incentives.

Despite the Wall Street endorsements and improved earnings performance, the company's stock has gone nowhere.

Benihana National Corp. went public in May 1983 at $11 a share. Two years later, the stock was trading above $20.

But the shares nose-dived after the Big Splash and frozen food fiascos, trading below $2 earlier this year. Benihana National Corp., traded over-the-counter, closed Monday at $2.75.

Asensio, the investment banker, said Laidlaw's clients bought near the bottom, so they could sell without a substantial loss. But that's not going to happen, he said.

"We see too much opportunity here for us to sell and walk away."

Webmaster Note:  This story proved to be seriously inaccurate and was corrected the next day with an article revealing that Laidlaw Holdings was not behind the suit at all, and that Asensio had been placed on leave from his job there pending an investigation.  Asensio was fired from Laidlaw in 1989 for "non-securities-related reasons," presumably his false claims to the newspaper that Laidlaw was behind the lawsuit.

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