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(Reuters) - Potbelly Corp (PBPB.O) is under pressure from an activist shareholder that wants the sandwich chain to change its strategy or explore the sale of the company, according to a letter obtained by Reuters.
Ancora Advisors LLC, which said it owns 4 percent of Potbelly shares, outlined steps it wants the company to take to boost its share price, including franchising more of its restaurants. It said it should explore a sale if it does not go through with these proposed changes.
"We would strongly urge it to immediately pursue a sale/ going-private transaction, as we do not believe the current strategy would be attractive for current or potential public/minority shareholders over any investable time frame," Ancora said in the letter, which was sent to the board.
Potbelly, a chain of sub and sandwich shops based in Chicago with a $276 million market capitalization, did not immediately respond to a phone call seeking comment.
The company's wood-paneled restaurants, fast service, and make-your-own-sub format from an array of fresh ingredients make it a popular place for the in-and-out lunch crowd.
After shares doubled on its debut to nearly $31 in October 2013, the stock has steadily declined. Shares rose 3 percent on Thursday to $11.50.
The company announced last month that Chief Executive and Chairman Aylwin Lewis will leave the company in August.
Ancora, an activist investor based in Cleveland, said that during the search for a new chief executive, the board should find a candidate with a significant amount of franchise experience.
Activist investors often call on restaurant chains to franchise more restaurants, rather than owning them outright, because it allows the company to accumulate more cash to give back to shareholders in the form of buybacks or dividends.
Ancora's chief criticism was that the company was opening too many new restaurants that are not franchised.
The investment fund said a heavier mix of franchised restaurants could more than double the company's stock price.
"We firmly believe Potbelly should seek out shareholder representation for its board," Ancora said in the letter, adding it may seek its own board presence at next year's annual meeting.
Reporting by Michael Flaherty in New York; Editing by Bernadette Baum