The ball is now in the hands of the Dillard family.
This story first appeared in the March 26, 2008 issue of WWD. Subscribe Today.
Activist fund Barington Capital Group on Tuesday ratcheted up its public critique of Dillard’s Inc.’s finances by demanding detailed information on the retailer and its executives.
The brewing proxy fight between Barington and the department store chain heated up when the fund filed notice that it sent a letter to Dillard’s board demanding to inspect records pertaining to the use of company assets, as well as the business and family relationships of its top executives.
According to documents filed with the Securities and Exchange Commission, Barington Capital Group and Clinton Multistrategy Master Fund Ltd., an affiliate, demanded to see copies of the minutes from Dillard’s board and committee meetings. The letter also asked for records pertaining to a number of activities, including the use of company aircraft, hiring of construction companies, family and business relationships, travel and business expenses for executives and the company’s retirement trust.
In the letter, Barington insisted the retail chain give it access to information regarding assets available to executive officers or directors of the company. Those assets include private residences and vacation properties, planes, boats, tickets to sporting and performing arts events and country club or golf club memberships. In some cases the fund asked for information going back as far as a decade.
Neither Dillard’s nor Barington returned calls seeking comment by press time.
The letter lists by name the top executives of Dillard’s: William Dillard 2nd, Alex Dillard, Mike Dillard and Drue Corbusier. It also requested board meeting minutes regarding their employment, and insisted on seeing information about their access to company assets and perks.
Barington even asked for detailed information about the company’s planes. The fund requested information about the purchase prices and sale prices of any aircraft the company owned or leased, and related flight travel logs and other documentation that included detailed information about passengers and destinations going back five years.
The fund also demanded to see five years’ worth of travel and business expenses for all executive officers of the company, with specific instances where the report included reimbursed expenses that were incurred by “a spouse, relative, or other person that accompanied the executive on a business trip.”
One section of the document requested information about CDI Contractors and Construction Developers Inc., a construction company owned in part by Dillard’s. Barington asked for detailed information about the ownership of the company and any work the entity did for members of the Dillard family or executives of the retailer.
Separately, CDI Contractors and Dillard’s were linked earlier this month involving a missing man. The chief financial officer of CDI Contractors, John Glasgow, reportedly has been missing since the end of January. A media report said Glasgow was involved in a redistribution of CDI’s ownership following the death a year ago of Dillard’s 50/50 partner in the venture. Dillard’s declined to comment publicly on the matter, according to reports at the time.
Barington currently controls just under 6 percent of Dillard’s Class A stock. The fund launched a bid to fill four seats on the retailer’s board on March 19, when it notified the retailer of its intentions. The Dillard family currently controls the remaining eight seats on the 12-person board through its control of the majority of the company’s Class B shares.
According to Barington, the move was initiated because it had no confidence in the retailer’s current board to improve shareholder value. In its communications to the company, the fund said Dillard’s stock price fell by 54 percent from June 20, 2007 through the close of trading on March 18, which accounted for a $1.6 billion loss to shareholders.
Barington nominated its own chairman, president and chief executive officer, James Mitarotonda, to the board, along with Charles Elson, a corporate governance expert and professor at the University of Delaware. Also on the Barington slate are Nick White, a former Wal-Mart Stores Inc. executive, and Eric Salus, a former senior executive with Federated Department Stores Inc.
Barington’s other retail and apparel holdings as of Dec. 31 include: two million Class A shares of Dillard’s Inc., 900,946 common shares of Syms Corp. and 3,000 common shares of Macy’s Inc. The company also previously held common shares of Target Corp., Warnaco Group Inc. and AnnTaylor Stores Corp. By Dec. 31, Barington had sold its remaining 9,300 shares of Target, 9,224 shares of Warnaco and 244,300 shares of Ann Taylor.
Barington and Clinton have been agitating for change at Dillard’s for some time now. In January the firm wrote to Dillard’s board to complain that its recommendations for improving shareholder value were ignored. As early as June of last year Barington had requested meetings with Dillard’s management. At the time the fund controlled 3 percent of the retailer’s stock.
“A lot of our hedge fund clients will flip into being active if they don’t like what they see management doing and they write these sort of letters,” said James Abbott, partner with the Wall Street law firm Seward & Kissel. “A lot of times it doesn’t generate anything, but there is a hope and expectation that it will put pressure on the management to do something that will improve the company share price.”
Sending a letter to a company is an inexpensive tactic that can sometimes push a company’s management team into action because of the threat it represents, Abbott said. A proxy fight, conversely, is very expensive but it shows a higher level of seriousness and will more often get results.
“Ultimately these activist-type shareholders get a reputation for just how active and how pushy they will be, and sometimes their reputation alone will carry the day to make management react,” Abbott said. Well-known investors like Carl Icahn carry that weight, he noted.
Still, legal sources said that it is difficult for activist investors to win a seat on the board of a company. In the case of Dillard’s specifically, Barington faces opposition from a family-dominated board, said Allan Duboff of Loeb & Loeb.
Dillard’s said earlier this month that profits in 2007 plummeted 78.1 percent to $53.8 million, or 68 cents a diluted share. Total revenues for the year were down 5.6 percent to $7.37 billion, while sales were down 5.6 percent to $7.21 billion.
“When markets are good and going up, it’s harder to find situations where this kind of activity will bring about some kind of positive result. Probably there will be more of this, be it of the desperation variety or the planned variety,” Abbott said.