The white proxy card or the blue one?
That is the question Chico’s FAS Inc. shareholders will have to have figured out by the time the company holds its annual shareholders’ meeting next month. Each colored card represents a separate and distinct slate of nominees standing for election to Chico’s board.
The women’s specialty chain and activist investor Barington Capital Group are in the midst of a proxy fight, with each side supporting its own slate of nominees to stand for election to the company’s board. The annual meeting is scheduled for July 21. The hedge fund owns a 1.5 percent stake in the outstanding shares of Chico’s.
Chico’s earlier this month sent a letter to its shareholders, highlighting the strategic plan the company is executing on under the direction of new chief executive officer Shelley Broader — she joined the company in December — and the extent of cost-cutting initiatives implemented so far during her first three months as ceo. The cost-cutting plans to date are expected to generate between $65 million to $85 million in annual savings.
In its letter, Chico’s urged shareholders to vote for the white proxy card, which has its slate of four nominees. Broader is standing for election, as well as Janice Fields, an independent director on Chico’s board and the former president of McDonald’s USA LLC. Two board seats will be vacated by current directors, former ceo David Dyer and Verna Gibson, who will retire when their current terms expire on the day of the annual meeting. To fill the two expected vacancies, the retailer is nominating Bonnie Brooks, vice chairman of Hudson’s Bay Co. and Bill Simon, former president and ceo of Wal-Mart U.S.
Barington believes it has ideas that can help the specialty chain — ones that could improve operations that might boost the stock price to the $26-a-share range over a three-year period. Shares of Chico’s has been trading in the $10.70 range. Giving that it wants to be heard, a seat at the boardroom table is a necessity for the hedge fund. In its letter, Barington also made a point of noting that it has a “16-year record of working with underperforming companies to help improve their operations, profitability, strategic focus and corporate governance.” It also noted some of its prior retail and apparel investments, such as Dillard’s, The Children’s Place, The Jones Group, Warnaco and Nautica.
The activist firm, which has filed its definitive proxy statement, submitted two nominees to Chico’s board on the blue proxy card. One is Barington’s ceo James A. Mitarotonda, who has sat on some of the board’s the fund has invested in, such as The Jones Group. The other nominee is former Macy’s vice chairman Janet E. Grove. Barington noted that while Fields, the incumbent independent director, is highly knowledgeable about the fast food industry, that doesn’t compare with Grove’s “more than 40 years experience in the apparel industry,” nor her “merchandising experience as chairman and chief executive officer of Macy’s merchandising group.”
Barington’s June 13 letter, which summarized the other reasons for its proxy solicitation, noted that Chico’s shares are “down more than 30 percent over the past 12 months and have fallen approximately 78 percent from its all-time high of $48.99 in February 2006, wiping out almost $5 billion in market capitalization.” The letter also mentioned the $200-million-plus loss connected with the chain’s “disastrous acquisition of Boston Proper.” The company sold the business to private equity firm Brentwood Associates in January for around $10 million, but had acquired it in 2011 while under the leadership of former ceo David Dyer for $205 million.
While Barington reiterated its belief that the company has a long list of positive attributes — sizeble market share in an underserved market; high gross margins; strong cash flow — it also told shareholders that it wants their vote to put its two nominees on the board. The activist firm said that with the “long period of underperformance under the Chico’s board,” its nominees have the experience to “help unlock the company’s value potential and ensure that stockholder interests are protected.”