At Benihana (BNHN) restaurants, drama is nothing new: the 46-year-old Japanese-style steakhouse chain is famous for its whirring cutlery, flying meat and flaming piles of onion slices. But recently, the excitement has spread from the dining room to the boardroom as a struggle for power between the company's shareholders (including late founder Rocky Aoki's children) and its directors has threatened to put the company -- and its 120 locations -- up for sale.
Not surprisingly, the chain's most recent problems began with the recession: as disposable income tightened and consumers cut back on restaurant visits, higher-priced dining options like Benihana were particularly hard hit. For fiscal 2010, the company reported that its losses had widened from the previous year, growing by close to 3% to $8.9 million. Revenue, however, rallied for the first time in two years, edging 2.6% higher to $313.5 million.
A Controversial Strategy for 'Renewal'
In the face of growing losses, the Benihana board, led by Chief Executive Richard Stockinger, pursued a controversial strategy: instead of seeking quick gains with lower-priced alternatives and promotions that might dilute brand value, it went in the opposite direction. The board introduced the "Benihana Renewal Program," a long-term strategy for improving food quality, service, and marketing. The program's immediate effect was to raise prices on some menu items, resulting in a drop in same-store sales and a slight reduction in the average check as customers decided to skip side dishes and other extras.
According to board member Alan B. Levan, Benihana Renewal was turning the company around: "The program worked extremely well, with great results. The stock price increased, investor confidence improved, and banking reliability stabilized. Overall, we were very comfortable with the progress." Levan emphasized that the company was on track to build shareholder value in the long term.
In February, the Benihana Board decided to merge Benihana with one of its subsidiaries. The move paved the way for a possible issue of 12.5 million shares of Class A stock, a fresh influx of cash that the company could use to repair its tattered credit. The company's credit line with Wachovia was once $60 million. But thanks to its tumbling profits, the bank cut its credit limit to $37.5 million and is expected to reduce the limit further in the coming months.
A Family Up in Arms
The proposed stock issue has angered some of the largest stockholders, including the children of company founder Rocky Aoki, who own 38% of the company's Class A stock and have argued that a release of more stock would dilute their holdings. The Aoki Trust -- specifically children Grace and Kyle Aoki -- has nominated two members to the company's Board of Directors, hoping to fill two of the three seats that will be opening at the next annual meeting. New York investment firm Coliseum Capital Management, which holds 12.9% of the company's stock, is also seeking a seat on the board.
In the face of a shareholder revolt, CEO Stockinger announced plans to pursue "strategic alternatives," including the potential sale of the company. While Benihana's future is "extremely bright," dissident shareholders "will make it very difficult for the company to realize its potential," said Levan. A sale would "maximize shareholder value in the short term." According to Levan, the company will retain the services of a banker in the next few weeks, and will move to sell the chain.
As if things weren't confusing enough, Aoki's kids face an internal power struggle of their own: their stepmother, Keiko Aoki, argues that they don't control the shares that they are using in their attempt for control. Keiko claims that she should be in charge of Benihana of Tokyo (BOT), the trust that holds the family holdings; according to The New York Post, the former Miss Tokyo has taken her claim to court and hopes to gain control of the family trust before the company's September 14 board meeting.
The House That Rocky Aoki Built
The King Lear-esque battle in the house of Aoki traces its roots to the once larger-than-life Rocky Aoki. A wrestler on Japan's 1960 Olympic team, Aoki later moved to New York City, where he raised money for his first restaurant by selling ice cream on the streets of Harlem. His Benihana business formula, with talkative chefs clanging knives and hurling shrimp, quickly caught on; by 1971, he had fifteen restaurants and by 1979, his chain was bringing in millions of dollars per year.
But as the Japanese restaurants became the latest rage, Aoki transformed himself. In a 2006 interview with New York magazine, the entrepreneur said that he was "like Hugh Hefner." Following Benihana's explosive success, he founded a pornographic magazine, Genesis, as well as the Genesis Club, a New York City disco. He raced speedboats, won a national backgammon championship, and became the first person to cross the Pacific in a hot air balloon.
He also began leading two lives. In New York, he had three children with wife Chizuro Aoki and, at the same time, he had fathered kids in California with mistress Pamela Hillberger and at least one other girlfriend. In 1979, his two families collided when New York-based sons Kevin and Steve paid him a surprise visit in Los Angeles and found themselves face-to-face with their half-brother Kyle. As if this wasn't bad enough, Aoki crashed his boat the following day and awoke in a hospital bed, flanked by his wife and his mistress. He and Chizuru soon divorced.
An Internal Power Struggle
Aoki had two more children with Hillberger before divorcing her in 1991. In 2002, he married his third wife, the former Keiko Ono. By then, his six children, including model Devon Aoki and Dim Mac records CEO Steve Aoki, were fully grown -- and they didn't approve of their new stepmother. Shortly after the marriage, the Aoki kids launched an unsuccessful attempt to get Keiko to sign a post-nuptial agreement renouncing any claim on Benihana. The plan backfired.
Four years earlier, in 1998, Rocky had been under investigation for insider trading; in an attempt to shield his company, he had stepped down as Chairman and formed Benihana of Tokyo, the trust that gave his children a great deal of sway over his company. In order to re-establish his control and draw his family together, he re-wrote his will to give Keiko control over 75% of the trust. Furious, his children rebelled and, in 2005, Rocky sued them for trying to take over his company. At the time of his death in 2008, there was apparently still some question about who actually controlled the family trust.
Without a doubt, the drama of this story will continue to unfold in both the courtroom and the boardroom. Many expect a proxy battle to unfold during the September shareholder meeting. Let's hope they hide they knives.
Representatives of Benihana and the Aoki family could not be reached for comment on this story.
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