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Potbelly (NASDAQ: PBPB) is the latest franchise targeted by activist investors. The acceleration of activist activity (described more on page 31) means it could have some interesting days ahead.

Ancora, an investment management and wealth advisory firm that owns 4 percent of Potbelly shares, issued a letter with a laundry list of critiques of the brand. The biggest complaint: The stock isn’t making money for shareholders—the shares are at $12, down from the post-IPO high of $17.

“Since going public in October 2013, investors have experienced nothing but losses as owners of Potbelly,” wrote Ancora CEO Fred DiSanto. “Over every measurable period, Potbelly has underperformed the market.”

The main three points from the Ancora letter question the franchise mix, corporate governance and capital expenditures. Of course, it came with some suggestions. In the letter, DiSanto outlined the changes he thought would move the needle.

Ancora advised the company to slow down "aggressive" new-location development and instead focus on efficient small-format kiosk locations that would boost margins and square-foot averages. It called for refranchising of company locations. A sale of 150 restaurants at 5 times EBITDA (or gross earnings) would produce $90 million for shareholders and reinvestment, according to Ancora. Executive compensation was also targeted. Ancora suggested it be pegged with shareholder returns, critiquing the large salaries at the top. Ancora also called for some new board members.

Where the battle will go is anyone’s guess, but given the tone of the initial letter, it might be another dramatic activist battle for the franchise industry. Potbelly has yet to respond to the Ancora letter.

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