The Fat Brands investor group, comprising major shareholders in Fat Brands Inc., has filed suit against both the company and its CEO Andy Wiederhorn, alleging mismanagement and self-dealings as well as failure to comply with applicable laws by the company’s Board of Directors and other executives in connection with certain executive activities.
In addition to measuring in excess of $2 billion in value if the company’s restaurants fail, the group claims the CEO and other executives are liable for damages due to their actions and inactions as stated. The legal action escalates a simmering governance dispute at the multi-brand restaurant franchisor.
Filed in Arizona Superior Court on behalf of Fat Brands shareholders who own shares in a trust affiliated with private equity firm SPB Hospitality, itself a major creditor of Fat Brands, the lawsuit claims:
- Wiederhorn and select board members engaged in self-dealing, mismanagement, and conflict-ridden transactions, prioritising personal or insider interests over shareholder value.
- Due to operational difficulties and its aggressive acquisition strategy, the Board of Directors (the Board) failed to implement adequate controls or other means of safeguarding the company’s financial position.
- The Board’s oversight and governance practices “rise to the level of gross negligence” and call for immediate intervention by the Court appointing a custodian or receiver.
The plaintiffs argue that the current leadership’s actions have contributed to declining share value and strategic missteps, and that removing Wiederhorn, who has led the company since 2017, is critical to stabilise the business and restore investor confidence ahead of key financial decisions.
Mr. Andy Wiederhorn is an experienced restauranter and co-founder of Fat Brands, an operator of over 20 legacy brands in the casual dining, sports bar, and fast-casual dining segments. Under Mr. Wiederhorn’s leadership, Fat Brands has acquired legacy brands (e.g., Round Table Pizza, Native Grill & Wings, and Yard House) to expand and grow its business, which were in addition to Fat Brands franchise operations. Although this strategy of acquiring multiple legacy brands has greatly increased Fat Brands unit and Franchise Fee revenue, critics are worried about the long-term sustainability of using debt and the complexity of integrating multiple brands.
The lawsuit targets the Board’s lack of proper oversight and executive compensation, and related party transactions by requesting a judicial review. The lawsuit also seeks equitable remedial relief by requesting Wiederhorn be suspended or removed and/or that corrective actions be taken to ensure the corporate governance structure is improved.
The investor petition articulates that the legal allegations are not typical strategic disagreements; they are also representative of fundamental governance failures that have a potentially detrimental impact on stakeholders throughout the company’s ecosystem, which includes franchisees, lenders, and employees. The complaint alleges that if decisive action is not taken, Fat Brands’ financial and reputational condition will decline even further, thereby diminishing long-term brand equity.
The dispute has received significant attention from others within the industry as it illustrates the conflict between franchisor leadership and investor expectations, particularly when looking at multi-brand roll-ups where much of their growth comes through acquisitions. Fat Brands’ challenges raise broader questions within the restaurant franchise sector about the equilibrium between expansion, managing debt, and executing operations effectively.
