DEFA14A: Portillo's Reaches Cooperation Agreement with Engaged Capital to Strengthen Board

Portillo's Inc. and Engaged Capital, LLC have entered into a cooperation agreement to appoint a new director with restaurant operations experience to Portillo's Board of Directors.

Summary

• Portillo's Inc. has entered into a cooperation agreement with Engaged Capital, LLC.
• The agreement aims to identify and appoint a new director with recent, relevant restaurant operating experience to Portillo's Board of Directors.
• Engaged Capital has withdrawn its director nominations for the 2025 Annual Meeting of Stockholders and its demand for stockholder lists.
• The new director will be appointed to at least one Board committee and given equal consideration for other committee memberships.
• If the new director cannot serve, a replacement will be jointly identified, subject to certain approvals and Engaged Capital maintaining at least 5.0% ownership or 3,193,486 shares of Class A common stock.
• Engaged Capital will vote its shares in favor of the Board's director nominees and recommendations on other matters, with exceptions for ISS recommendations and extraordinary transactions.
• Engaged Capital is subject to customary standstill restrictions.
• Both parties agree not to disparage each other.
• The agreement terminates 30 days before the 2026 director nomination deadline or 120 days before the first anniversary of the 2025 Annual Meeting, with a possible earlier termination if the new director isn't appointed by September 1, 2025.
• Portillo's will reimburse Engaged Capital up to $300,000 for expenses related to the agreement and the 2025 Annual Meeting.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive. The agreement resolves a potential conflict with an activist investor and adds expertise to the board. However, it also involves some concessions and expenses for the company.

Positives

• The agreement avoids a potential proxy fight with Engaged Capital.
• The addition of a director with restaurant operating experience could benefit Portillo's.
• Engaged Capital's agreement to vote with the Board provides stability.
• The standstill agreement limits Engaged Capital's ability to disrupt the company.
• The cooperation shows a willingness from both parties to work together.

Negatives

• The agreement gives Engaged Capital influence over board appointments.
• The reimbursement of up to $300,000 to Engaged Capital is an expense for Portillo's.
• The agreement includes certain restrictions on Portillo's actions.

Risks

• Failure to appoint a new director by September 1, 2025, could lead to termination of the agreement.
• Disagreements could arise during the director selection process.
• The new director may not perform as expected.
• The forward-looking statements in the press release are subject to various risks and uncertainties, including economic conditions, competition, and regulatory changes.

Future Outlook

The company aims to drive traffic, improve margins, and deliver industry-leading unit economics for shareholders through decisive action and the expertise of the new director.

Management Comments

• Michael A. Miles, Jr., Portillo's Chair of the Board, stated that the Board is committed to overseeing decisive action to drive traffic, improve margins and deliver industry-leading unit economics for shareholders.
• Glenn W. Welling, Founder and Chief Investment Officer of Engaged Capital, believes there is a significant opportunity to create value for shareholders through actions being taken to shrink restaurant size, drive sustainable same store sales, and improve restaurant margins.

Industry Context

Activist investors like Engaged Capital often target undervalued restaurant chains to unlock value through operational improvements, cost-cutting, or strategic changes, and this agreement reflects a common approach to board representation and influence.

Comparison to Industry Standards

• Cooperation agreements between companies and activist investors are common, with similar agreements seen at companies like Darden Restaurants (with Starboard Value) and Chipotle (with Pershing Square).
• The standstill provisions and voting commitments are standard terms in such agreements.
• The expense reimbursement of $300,000 is within the typical range for these types of agreements.

Stakeholder Impact

• Shareholders may benefit from the addition of a director with restaurant operations experience and the avoidance of a proxy fight.
• Employees may be affected by any operational changes implemented by the new director.
• Customers may see changes in the restaurant experience as a result of the new director's influence.

Next Steps

• Portillo's and Engaged Capital will work together to identify and appoint a new director with restaurant operations experience.
• The company intends to file a proxy statement on Schedule 14A for the 2025 Annual Meeting.
• Engaged Capital will file a Schedule 13D/A with the SEC.

Key Dates

Keywords

cooperation agreement, Engaged Capital, board of directors, director appointment, standstill agreement, voting agreement, restaurant industry, corporate governance, proxy solicitation, Portillo's