Recommended Reading - U.S. Downturn Boosts Shareholder Activism

Forbes wrote an insightful synopsis of a recent study conducted by Oxford Analytica on the increasing influence of activist shareholders as the U.S. economy and American corporations face a slow down in demand. The article pays particular attention to executive compensation and corporate governance issues.

Activist Shareholders Key in Charming Shoppes CEO's Demise

Charming Shoppes CHRS (NASDAQ), the embattled women's retailer, announced the immediate resignation of its CEO, Dorrit Bern. Bern, who originally came to the company back in 1995 as president, CEO and vice chair of the board, has been under growing pressure from activist investors unhappy with management and the company's overall performance. While activist shareholders (Myca Partners and Crescendo Partners) have been rightfully concerned with the company's performance over the last year, Bern was instrumental in growing the firm from the time she first arrived. According to the company's website, under her leadership corporate revenues increased from $1 billion to $3 billion by 2006. According to the company's press release,

"Dorrit and the Board agreed that now is the appropriate time for a change in leadership of the Company. Her leadership resulted in the repositioning of Charming Shoppes as a multi-brand, multi-channel specialty apparel retailer, and the nation's leader in women's specialty plus apparel."

Growth, however, is now at a standstill and the firm has been facing increasing problems. According to Women's Wear Daily,

The retailer's stock fell 60 percent last year.

Bern has initiated a series of changes over the last year and a half including reductions in staff and management and better inventory control. While the changes were needed they have not been viewed by many analysts and shareholders as sufficient. While earnings have continued to remain anemic Charming Shoppes took forceful steps to fight off attempts by activist shareholders to make changes on the company's board and management. The company even initated a lawsuit but in the end activist shareholders seemed to have gotten the upper hand. After back and forth negotiations the company caved and allowed two activist sharehodler candidates to be elected to the board.

As part of the company's management change announcement, the firm made recently appointed Chairman, Alan Rosskamm, the interim CEO. Rosskamm was previously the Chairman and CEO of Jo-Ann Stores and has been a long time member of Charming Shoppes' board. Charming Shoppes has a great deal more to do to help solidify its weakening retail position.

Keep a close eye on who the company comes up with to permanenetly replace Bern and what role the key activist shareholderes play going forward. There are likely more changes to come.

For more:

CNN

Philly.com

MSN Money

Triangle Business Journal

Portfolio.com

Activist Shareholders Impact A French Firm For First Time

France finds itself added to the list of European countries where activist shareholders can have an impact.  Atos Origin S.A. ATO (Paris Exchange), provider of information technology systems and services, succumbed the other day to growing pressures from activist shareholders.  After resisting increasing pressures for a number of months from Pardus Capital Management and Centaurus Capital Ltd., who happened to be the company's two largest shareholders, the company agreed to parts of their requests.  The activist funds were insisting the company make changes to its corporate strategy and management. According to a story by Geraldine Amiel for The Wall Street Journal,

In a joint statement, Atos and the funds said they reached an agreement over management and other issues "in the best interest of the company, its employees, its clients, and all stakeholders."

•  What's New: Atos Origin reached agreement with two funds on management and strategic shifts as Chairman Didier Cherpitel stepped down.

•  The Background: The funds, Centaurus Capital and Pardus Capital, will each gain a board seat at the IT-services concern:

•  What's Next: Not a breakup, Centaurus and Pardus say.

Pardus and Centaurus, which hold a combined stake of more than 23% in the French information-technology-services company, have been at loggerheads with management for months and have been seeking to oust Mr. Cherpitel and nominate their own candidates to the supervisory board.

The company agreed to select Jean-Phillippe Thiery, the chairman and CEO of the French insurer AGF, as chairman and replacement for Didier Cherpitel.  Before the agreement came about a chaotic spectacle took place where accusations were flying between the two camps.  According to a Reuters story by Dominque Vidalon,

Speaking at a news conference held jointly with his former tormentors, Atos's chief executive, Philippe Germond, said the funds had promised not to push for a break-up of the 11-year-old firm. He reiterated he would look at a merger offer if one arrived.

He said both sides regretted the chaotic scenes at last Thursday's shareholder meeting, in which the meeting hall's power was cut off to prevent the funds from pressing for a vote.

"The management and the funds fully realised that our disagreements were compromising the smooth running of Atos. That's why we chose to enter discussions and I assure you today that all the parties are extremely sorry," he said. 

Expect more pressures on French firms as activist shareholders look to make more changes. Keep a close eye on Atos Origin to determine whether the recent changes make a difference.

For more:

Deal Journal

Reuters

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.

For more:

Dealscape