By  on October 27, 2008

The dissident shareholder saga at Dillard’s Inc. has progressed from an attempted buyout of the Dillard family stock to an attempted take-out of chief executive officer William Dillard 2nd.

Barington Capital Group and Clinton Group, activist investors who collectively control about 5.3 percent of the firm’s common stock, called on three of the firm’s independent directors to begin looking for a new chief executive officer for the retailer.

There’s little indication that the entrenched Dillard’s clan is budging, but investors responded by driving the firm’s shares up 35.3 percent, or $1.18, Monday, to $4.52 on what was generally an off day for retail issues.

Despite the jump, the stock is still down 80.7 percent from its 52-week high. Dillard’s was removed from the S&P 500 index last week, prompting a sell-off.

“It is clear to us that the company’s management team led by Mr. Dillard and his siblings must be replaced,” wrote James A. Mitarotonda, ceo of Barington, and George Hall, ceo of Clinton, in a letter Friday. The letter was sent to independent Class B directors Robert Connor, Peter Johnson and Warren Stephens, and filed with the Securities and Exchange Commission Monday.

The investors said members of the Dillard family working at the chain received more than $130 million in total compensation over the last decade as the firm’s star waned.

“During this time period, the company’s stock has consistently underperformed its peer companies and the market as a whole, regardless of the strength of the economy,” the investors said.

On average, analysts expect Dillard’s to lose 50 cents a share in the third quarter currently wrapping up, versus net income of 49 cents a share in last year’s comparable period. Through Oct. 4, year-to-date sales were down 5 percent, to $4.36 billion, while comparable-store sales were off 6 percent. September net sales and comps were both off 12 percent.

Last month, investors were agitating for the firm to buy out the Dillard family’s Class B shares, which gives them control over the company’s board.

In May, Barington and Clinton succeeded in getting representatives onto the firm’s board after pushing for disclosure of executive compensation and perks, such as use of company aircraft.

“Dillard’s management is committed to improving shareholder value,” a spokeswoman for the retailer said. “The best way to serve the long-term interests of all shareholders is to concentrate our efforts on running our business conservatively and on navigating the near-term economic uncertainty.”

Like other regional department stores, Dillard’s is in a tough spot with better-capitalized national chains taking market share and the souring economy hurting profit margins.

“We do not think the Dillard family will give up control of the company without a fight,” Jason Asaeda, Standard & Poor’s equity analyst, said. Still, Asaeda upgraded the stock to “hold” from “sell” saying the company’s shares are now “fairly valued.”

Retail stocks continue to be dogged by economic fears.

After spending much of the day in positive territory, the Standard & Poor’s Retail Index wound up falling 1.1 percent, or 2.64 points, to close at 244.40 Monday.

Broadline retailers losing ground were Saks Inc., down 9.7 percent to $4.96; Wal-Mart Stores Inc., 3.4 percent to $49.67, and The Bon-Ton Stores Inc., 3.1 percent to $1.54.

Stumbling specialty stores included Chico’s FAS Inc., down 12.3 percent to $2.57; The Talbots Inc., 11.7 percent to $8; AnnTaylor Stores Corp., 8.8 percent to $11.74; Charlotte Russe Holding Inc., 7 percent to $6.63, and New York & Company Inc., 6.3 percent to $2.22.

On the vendor side, Liz Claiborne Inc.’s stock fell 10.5 percent to $6.22 after Standard & Poor’s placed the firm’s corporate credit rating on credit watch with negative implications. The firm’s debt is currently rated “BB-plus.”

Claiborne on Friday warned its 2008 adjusted earnings from continuing operations would range from $1 to $1.10 a share instead of the $1.40 to $1.50 previously projected.

The Dow Jones Industrial Average slid 2.4 percent, or 203.18 points, to 8,175.77.

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