Management Turnover as Change Agent

Wednesday, April 2, 2008

Activist Hedge Fund Barington Capital Successfully Pressures Dillard's

After a short fight with management, yesterday Barington Capital appeared to get the better of Dillard Inc.'s DDS (NYSE) management.  On March 20th Women's Wear Daily wrote,
Back on March 19, Barington Capital Group, the well-known activist hedge fund, notified Dillard's Inc.  that it planned to nominate four people for election to the retailer's 12-member board. Barington represents a group of investors that controlled over 5 percent of the company's Class A stock. According to Barington, the move was being initiated because of a lack of confidence in Dillard's current board to improve shareholder value. Barington's nominees included James Mitarola, the chairman, president and chief executive officer of Barington; Charles Elson, a corporate governance expert and professor; Nick White, a former Wal-Mart Inc. executive, and Eric Salus, a former senior executive with Federated Department Stores.
Yesterday Dillards announced that it had reached an agreement with Barington Capital Group. According to a story by Lance Turner and Mark Friedman for Arkansas Business,
Per the agreement, one of the four people Barington said it wanted on Dillard's board - Nick White, president and CEO of White & Associates and a former executive vice president and for Wal-Mart Stores Inc. - will be among a new group of four nominees that Dillard's is recommending shareholders elect.

The other nominees are:

James A. Haslam, III, CEO of Pilot Travel Centers LLC
R. Brad Martin, former chairman and CEO of Saks Inc.
Frank R. Mori, Co-CEO and president of Takihyo Inc., former president and CEO of Anne Klein Inc. and former CEO and founding Partner of Donna Karan International
The new slate of nominees does not include Mitarotonda, who was among the four nominees Barington Previously Said It Would Nominate to the Dillard's board.

On Wednesday, Mitarotonda said Barington has had "positive discussions" with Dillard's CEO William Dillard II and representatives of the retailer, which "resulted in an outcome that we felt was favorable for all of the shareholders."
Dillards has expressed its happiness with the overall agreement but when you look closer it is obvious Barington Capital managed to get most of what it wanted.  As part of the agreement the company agreed to,
... a review of Dillard's real estate portfolio, to see "whether the company's real estate assets and capital are being optimally deployed to prudently build the most value per share for long-term owners."
That includes plans to close underperforming stores, cut unnecessary costs and "subject all future commitments for new stores to strict return on capital requirements that will be set by the board and management."
Dillard's management of its real estate portfolio has been a key point of contention with Mitarotonda...
Activist shareholders continue to place growing pressure on management and often times succeed in their attempts to change management.  Sometimes the changes are for the better and sometimes not.  There is no question, Dillards needed some changes.

Time will tell.

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