SCHEDULE 13D/A: Engaged Capital Strikes Cooperation Agreement with Portillo's, Securing Board Seat and Governance Changes

Activist investor Engaged Capital has reached a cooperation agreement with Portillo's Inc., leading to the appointment of a new independent director with restaurant industry experience and establishing a standstill period.

Summary

• Engaged Capital, including Engaged Capital Flagship Master Fund, LP and Engaged Capital Co-Invest XVII, LP, collectively beneficially own 4,929,771 shares of Portillo's Inc. Class A Common Stock, representing approximately 7.7% of the outstanding shares as of April 11, 2025.
• The aggregate purchase price for these shares was approximately $37,753,482 for Engaged Capital Flagship Master and $16,845,951 for Engaged Capital Co-Invest XVII, funded primarily through working capital.
• On April 28, 2025, Engaged Capital and Portillo's Inc. entered into a Cooperation Agreement to identify and appoint a new director to the Board with recent relevant restaurant industry operator experience.
• The new director will be appointed after the 2025 annual meeting of stockholders and will serve on at least one Board committee.
• Engaged Capital is subject to customary standstill restrictions until the earlier of 30 days prior to the 2026 annual meeting notice deadline or 120 days prior to the first anniversary of the 2025 annual meeting.
• During the standstill period, Engaged Capital has agreed to vote its shares in favor of Board-recommended director nominees and other matters, with exceptions for ISS recommendations on non-director proposals and Extraordinary Transactions.
• Engaged Capital has also agreed not to acquire beneficial ownership exceeding 9.9% or economic exposure exceeding 14.9% of outstanding shares, and not to transfer shares to certain activist investors.
• Engaged Capital Flagship Master has fully exited its cash-settled total return swap positions and covered its custom call option short positions.
• Charles (Charlie) R. Morrison, a previously considered nominee, withdrew his candidacy due to accepting a Chief Executive Officer position at Jersey Mike's Subs.
• Engaged Capital terminated a previous Joint Filing and Solicitation Agreement with Charles R. Morrison and Nicole Portwood and entered into a new Joint Filing Agreement among the Reporting Persons.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive. The resolution of an activist campaign through a cooperation agreement is generally viewed favorably as it avoids a potentially disruptive proxy fight and often leads to constructive changes. The addition of a new director with relevant industry experience is a positive step for governance and strategy. However, the withdrawal of a specific nominee and the activist's recent share sales introduce some mixed signals.

Positives

• The Cooperation Agreement signifies a constructive resolution between an activist investor and Portillo's management, potentially leading to improved corporate governance and strategic direction.
• The appointment of a new director with recent restaurant industry operator experience could bring valuable operational insights to the Board.
• The standstill agreement provides a period of stability, limiting further activist actions by Engaged Capital for a defined period.

Negatives

• A previously considered nominee, Charles R. Morrison, withdrew his candidacy, potentially delaying or altering the desired board composition.
• Engaged Capital Flagship Master Fund, LP engaged in significant sales of Class A Common Stock and cash-settled total return swaps between March 26, 2025, and April 9, 2025, which could indicate a partial reduction in their overall exposure or a rebalancing of their position.

Risks

• The Cooperation Agreement can be terminated by either party if the New Director has not been appointed to the Board by September 1, 2025, subject to limited exceptions, which could reignite activist pressure.
• The standstill agreement includes specific voting restrictions for Engaged Capital, limiting their discretion on certain matters, though exceptions exist for ISS recommendations and Extraordinary Transactions.
• The agreement restricts Engaged Capital from increasing its beneficial ownership beyond 9.9% or economic exposure beyond 14.9%, and from transferring shares to certain activist investors, which could limit future strategic flexibility for the investor.

Future Outlook

The Cooperation Agreement outlines a path for Portillo's to appoint a new director with relevant restaurant industry experience to its Board, which is expected to occur after the 2025 annual meeting of stockholders. Engaged Capital will maintain its significant ownership stake while adhering to standstill provisions, including voting agreements and ownership caps, until the Termination Date, which is tied to the 2026 annual meeting cycle. The agreement aims to foster a collaborative relationship between the activist investor and the company's management.

Management Comments

• Glenn W. Welling, Founder and Chief Investment Officer of Engaged Capital, LLC, signed the filing, certifying the information is true, complete, and correct to the best of his knowledge and belief.

Industry Context

This filing reflects a common outcome in shareholder activism, where an activist investor, like Engaged Capital, engages with a company's board to influence strategic direction or corporate governance. The focus on appointing a director with 'recent relevant experience in the restaurant industry as an operator' suggests a belief that Portillo's could benefit from enhanced operational expertise at the board level, a trend seen across various consumer-facing industries where operational efficiency and customer experience are paramount. The resolution via a cooperation agreement, rather than a proxy contest, indicates a mutually agreeable path forward, which is often preferred by both companies and investors to avoid costly and disruptive public battles.

Comparison to Industry Standards

• The beneficial ownership stake of 7.7% held by Engaged Capital is a significant activist position, typically sufficient to exert influence on corporate governance, aligning with common thresholds for activist engagement in publicly traded companies.
• The terms of the Cooperation Agreement, including the appointment of an independent director with specific industry expertise and a standstill provision, are standard practices in resolving activist campaigns, similar to agreements seen with other restaurant or retail companies facing activist pressure (e.g., Starboard Value's engagements with Darden Restaurants or Papa John's, or Trian Fund Management's involvement with Wendy's).

Management Changes

Corporate Governance

Stakeholder Impact

• **Shareholders**: The agreement provides clarity on the activist investor's intentions and a structured path for governance changes, potentially reducing uncertainty. The addition of an experienced director could lead to improved company performance.
• **Management/Board**: The agreement establishes a framework for cooperation with a significant shareholder, potentially streamlining decision-making and reducing the risk of a proxy contest. However, it also introduces new oversight and accountability.
• **Employees**: No direct impact mentioned, but improved company performance due to strategic changes could indirectly benefit employees.
• **Customers/Suppliers**: No direct impact mentioned.

Next Steps

• Portillo's Board and its Nominating and Corporate Governance Committee will identify, review, and approve candidates for the New Director position.
• The New Director will be appointed to the Board after the conclusion of the Issuer's 2025 annual meeting of stockholders.
• The New Director will be appointed to at least one committee of the Board.
• Engaged Capital will adhere to the standstill restrictions and voting agreements as outlined in the Cooperation Agreement until the Termination Date.

Key Dates

Keywords

Portillo's Inc., Engaged Capital, Schedule 13D/A, Cooperation Agreement, Activist Investor, Corporate Governance, Board Appointment, Shareholder Activism, Standstill Agreement, Beneficial Ownership, Restaurant Industry, SEC Filing