NEW YORK — A significant shareholder in Warnaco Group Inc. Thursday called for an overhaul of the company’s board and the resignation or demotion of several directors and officers, including its chairman, Stuart Buchalter, and chief executive officer Joseph Gromek.
The demands were made by Daniel S. Loeb, managing member of investment firm Third Point Management Co. LLC, which holds a 5 percent stake in the New York apparel resource currently worth $36.3 million. He made the charges in a schedule 13D filing to the Securities and Exchange Commission.
In his filing, Loeb — who earlier this year was rebuffed in efforts to be named to Warnaco’s board — claimed some of the company’s top officials and advisers are treating the enterprise as a “honey pot” for their personal enrichment at the expense of shareholders. In a phone interview, Loeb complained that at Warnaco there is an “aura of people dipping into the cookie jar with a view of lining their own pockets instead of creating value for the shareholders.”
In the letter, Loeb also issued the “demand” that he or a representative of his firm be appointed to the board. He said if Warnaco management does not respond to his requests, he will seek to convene a special meeting of shareholders. He said according to the company’s bylaws he would need a group of investors with a combined 15 percent stake in the firm to call such a meeting.
He also said he would seek to have directors elected to represent the company’s two other largest shareholders. In the phone interview, he acknowledged he had not yet been in contact with other shareholders, but would likely do so if necessary to call the special meeting.
A Warnaco spokesman late Thursday issued a statement saying, “We strongly reject what we believe to be his baseless accusations and unreasonable demands.”
The two-paragraph Warnaco statement further noted, “The board and management team of Warnaco have accomplished a successful turnaround and emergence from Chapter 11 reorganization and have made substantial contributions to the success of Warnaco’s brands and its leading role in the apparel industry. We do not believe that engaging in further discussions regarding Mr. Loeb’s demands is productive or in the best interest of our stakeholders. Management and the board will continue to focus on our business and creating value for all stakeholders, including Mr. Loeb.”In his 10-page letter, Loeb called for the resignation of non-executive chairman Buchalter, the demotion of ceo Gromek to executive vice president, for director Antonio C. Alvarez of Alvarez & Marsal to cease providing consulting services to the company, for Alvarez & Marsal executive James Fogarty to step down as interim chief financial officer and for the resignation of outside director Sheila Hopkins.
In a letter that was highly critical of the company’s top brass and board, he singled out director and former Avon ceo Charles Perrin for faint praise, claiming that Perrin is the sole outside director to have bought Warnaco shares with his own money.
He said in the interview that any new chairman should be a person who has made a significant cash investment in Warnaco shares.
According to SEC records, this is not the first such letter Loeb has sent to a company in which his firm invests. On March 11, he wrote to the ceo of energy concern Penn Virginia Corp., of Radnor, Pa., calling for his resignation. He criticized the ceo, A. James Dearlove, for his slim holdings in that firm. According to Penn Virginia’s Web site, Dearlove remained ceo as of Thursday evening.
However, in 2001, the ceo of a Houston-based software company called Bindview Development Corp. resigned after a sustained pressure campaign by Third Point, according to the Houston Chronicle. As of June, the fund had a 3.9 percent stake in that enterprise.
Loeb said in the Warnaco letter Alvarez “did a commendable job” in turning the company around as ceo prior to the hiring of Gromek in April, but criticized Warnaco for continuing to pay Alvarez at a rate of $750 an hour for consulting services for the four months since a new ceo was named. The letter also said it appears from SEC filings that Warnaco seems to have paid Alvarez a total of $140,000 for his consulting services since he stepped down as ceo.
It also criticized Fogarty’s $475 an hour salary as cfo.
“The high sums Mr. Alvarez and Mr. Fogarty have received suggest to us and others that they view this company as a ‘honey pot’ from which to extract as much ‘nectar’ [shareholders’ cash] as possible,” the letter said. “It is high time that Mr. Alvarez moves onto his next bankruptcy assignment where the courts are generous in permitting exorbitant fees for professional services.”The letter claimed Alvarez & Marsal Inc., where Alvarez and Fogarty are partners, was paid more than $12 million in cash and shares by Warnaco prior to May 27. The figure was determined from Warnaco’s 10Q April 2003 proxy and subsequent debt prospectus, it said.
Turning to Buchalter, Loeb noted he was paid $500,000 last year, an amount that this year was reduced by half, following Gromek’s hiring. He called Buchalter’s salary “an outrageously high sum for a non-executive chairman who has already been gifted 12,975 free shares.”
In the interview, Loeb said he decided to file the letter with the SEC after having trouble communicating with Warnaco’s top management. Loeb, 41, was the sole shareholder to address Warnaco’s May annual meeting in New York, where he told management he wanted to see “an increased level of communication between the company and our shareholders.” At the meeting, Buchalter said Loeb’s comments would be “taken seriously.”
“There have been a number of discourteous actions toward us and other investors, but it really culminated with the most recent investor conference call, in which management didn’t take any questions from Third Point. That, to us, was the last straw,” Loeb said Thursday. “Since we couldn’t voice our views on the conference call, the only alternative management left us was to go forward with the 13D filing.”
While criticizing current top management and the Warnaco board, Loeb stopped to praise the company’s three divisional presidents, John Kourakos over sportswear, Tom Wyatt over intimate apparel and Roger Williams, over Authentic Fitness.
When Warnaco filed its last proxy statement in April, there were seven institutional investors with stakes in the firm greater than 5 percent, the level at which an outside investor is required to disclose holdings to the SEC.
Since then, two institutional investors have sold or reduced their holdings below that threshold: Commerzbank AG said in an Aug. 13 filing that it had disposed of all its 9.4 percent as of May 30 while, according to a June 23 filing, Bank of America Corp. has reduced its 6 percent stake to below the 5 percent threshold. It did not specify how many shares the firm retained.The largest remaining investor was the Toronto-based Bank of Nova Scotia, with 4.4 million shares for a 9.8 percent stake. A bank spokesman declined to comment on Loeb’s letter Thursday. The other four firms were Societe Generale, with 9.8 percent; General Electric Capital Corp., with 8.8 percent; JP Morgan Chase, with 8.3 percent, and Chesapeake Partners Management, with 5.8 percent. Representatives of those firms could not be reached for comment.
In a separate matter, after the close of trading Thursday, Warnaco issued a statement saying Alvarez planned to sell about 200,000 of his Warnaco shares. At the time of Warnaco’s proxy filing, his total holdings in the company’s stock were 266,400 shares.
Warnaco shares rose 20 cents on Thursday to close at $16.10 on the Nasdaq National Market.
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