WASHINGTON — Activist investors appear poised to do to Saks Inc. what William Ackman failed to accomplish in his attempt to transform the board of Target Corp.
This story first appeared in the June 4, 2009 issue of WWD. Subscribe Today.
Two shareholders — P. Schoenfeld Asset Management LLC and the New England Carpenters Pension Fund — won the first stage in their proxy fight with Saks on Wednesday as stockholders approved two nonbinding proposals in their effort to make the luxury retailer and its board more accountable to investors.
At Saks’ annual meeting held here, shareholders approved a proposal submitted by P. Schoenfeld, which controls 1.5 percent of Saks common stock, to declassify Saks’ 10-member board and reduce directors’ terms to one year from three.
A second proposal submitted by the pension group to change Saks’ plurality voting structure to a majority vote was also approved.
However, an attempt by P. Schoenfeld to unseat C. Warren Neel, who sits on the board’s governance and nominating committee, was unsuccessful. Neel was reelected to the board for another three years.
Stephen I. Sadove, chairman and chief executive officer of Saks, said he expects to release the final vote counts in two weeks. The board will take the two approved shareholder proposals into consideration and hold discussions with the two parties, he said.
“Of course we’ll consider it,” Sadove said after the meeting. “That’s one of the reasons we took a ‘no’ position on the staggered board [proposal] because we wanted to hear what shareholders had to say.”
Now that they’ve spoken, Sadove, citing New York Stock Exchange rules, indicated the company and its board have four months to respond to shareholders.
Peter Schoenfeld, chairman and ceo of Schoenfeld, said, “We trust the board will respect the wishes of shareholders and implement the declassification recommendation on an expedited basis. We believe that shareholders will approve a board declassification amendment to Saks’ certificate of incorporation by the required 80 percent of outstanding shares vote if the board presents and provides genuine support to such a proposal.”
At the meeting, Rob Davis, a Schoenfeld analyst, pressed his firm’s case, accusing Saks management of making “missteps,” which led to “underperforming stock prices” and below-average operating margins. Margins and sales per square foot had fallen short of Neiman Marcus’ results, he noted.
“We believe this inferior performance is due to Saks’ presence in many undesirable locations, which…caused low sales productivity and led to unsatisfactory returns on investment,” said Davis.
Sadove told shareholders during the meeting that the company is reviewing stores with expiring leases and is committed to closing “unprofitable” ones. In an interview after the meeting, he declined to disclose how many of the company’s stores are bumping up against lease expirations, but he said it is “not many.” Saks owns 29 of its 53 full-line stores, including the Chicago and Fifth Avenue flagships, and leases all of its 52 Off 5th units.
“If we have an unprofitable store, we’ll work with the developers and in some cases they will work with us because they are not making money on the stores either,” he said.
He noted the company cut $50 million in costs last fall and another $44 million in costs in the first quarter of this year.
Sadove predicted “stabilization” in business this year, noting that markdowns will begin to “normalize.”
“I think it is a different world,” he said. “I use the term: ‘Don’t let a good recession go to waste,’ as an opportunity to say, ‘Hey, let’s challenge ourselves about every element of how we operate and say this is a brand that is going to be around. We’re going to survive this. We’re going to get to the other side.”