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Times are tough for retailers, and activist investors are at the ready lobbying for moves to boost shareholder value including: sale-leaseback deals to raise cash to return to shareholders; shuttering underperforming stores; board shakeups; selling a company entirely; or thwarting sale plans that undervalue assets.
The Deal's Matt Miller wrote recently:
But as many struggle, and many go bankrupt, what's the best tack for a company to take? Sale-leasebacks are not always the ideal route for companies strapped for cash selling, especially in today's poor real estate market. Here is a look at some recent campaigns, who keeps popping up and what they have called for: Borders Group Inc. Borders was busy the first week of June. The company said June 5 it would sell its Australian operations to Pacific Equity Partners portfolio company A&R Whitcoulls for up to $104 million, days after it found itself back in headlines as it began laying off 20% of its corporate work force. The move, the struggling company said, is aimed at trimming $60 million in expenses this year and $120 million annually by 2009. Meanwhile, just two weeks earlier, and two months after the bookseller -- squeezed by pressure from activist investor William Ackman and stiff competition -- said it was weighing its strategic options, its largest competitor indicated it may attempt to acquire the company. Barnes & Noble Inc., the largest bookseller in the U.S., is weighing a bid for Borders, a spokeswoman confirmed for The Deal May 21. A Wall Street Journal report was first out with the news. A deal could be good news for Ackman, who runs Pershing Square Capital Management LP, Dealscape's Michael Rudnick noted:
The bookseller in March said would suspend its quarterly dividend and that it had hired J.P. Morgan Securities Inc. and Merrill Lynch & Co. to explore a possible sale. Borders said Pershing Square committed to lending it $42.5 million and could buy some of the firm's international operations. Terms were renegotiated, Dealscape's Ron Orol wrote April 7: "Pershing Square will pay $135 million for the bookstore's international chain, up from $125 million. The revised deal also includes a lower interest rate of 9.8% on a $42.5 million senior secured term loan offered by the activist fund." The news comes nearly six months after Pershing changed its passive, 13G filing status in the bookseller, opting to take an activist stance with its 11.7% stake through a 13D filing. The Deal's Scott Stuart noted at the time:
The move followed an amended 13D filing by Spencer Capital Management LLC and T2 Partners Management LP, which collectively held 8.5%, stating that on Sept. 25 the funds asked Borders to place a member of their group on the board. It had been on a restructuring path. Days earlier, the company sold BGI (UK) Ltd., its London operations, and Borders Books Ireland Ltd. to buyout shop Risk Capital Partners, canceling certain debts and taking a 17% stake in the privatized company. Target Corp. Meanwhile, also feeling the heat from Ackman, Target Corp. unveiled plans May 6 to sell J.P. Morgan Chase & Co. almost half of its credit card portfolio for $3.6 billion. Pershing took a stake in Target in July 2007 and proposed that the company sell its credit card receivables as well as rethink its debt structure and share buybacks. Target said March 12 it was near a $4 billion deal for half the business. The Minneapolis-based discount retailer had said in September it was weighing options for the credit card operations, after years of maintaining the unit would not be sold. Target tapped Goldman, Sachs & Co. for a review that also included re-evaluating its use of debt and the pace of share repurchases. But upon the September news, as The Deal's Donna Block noted, "a number of retail analysts said it is more likely that the recent turmoil in the credit markets played a far bigger role in pushing Target into an about-face."
Circuit City Stores Inc. Under pressure from investor Mark Wattles, ailing electronics retailer Circuit City put itself
on the block April 4, pulling in Goldman, Sachs & Co. to advise,
sources told The Deal. The news was publicly confirmed May 9. When Blockbuster Inc., which has its own problems,
made public its offer for Circuit City -- which could be backstopped by
Blockbuster investor and fellow activist Carl Icahn -- in April,
Wattles encouraged it, and HBK Capital Management, a shareholder in both companies, said it might help finance such a deal. Back in February, Wattles, whose
Wattles Capital Management LLC owns a 6.5% stake Circuit City, nominated five directors to the beleaguered electronics retailer's board. He also called for the ouster of chairman and CEO Philip Schoonover. Dealscape's Matthew Wurtzel wondered
whether the investment could mean bankruptcy was imminent:
The stage was set for a proxy showdown May 8 between plus-sized retailer Charming Shoppes and its activist investors, but the company gave in, according to the Philadelphia Inquirer, agreeing to add two nominees put forth by Crescendo
Partners LP and Myca Partners Inc., to its board and postponing its shareholder meeting until June. The activists own a stake of about 8% in
Lane Bryant parent Charming Shoppes and have shunned the company's
executive compensation plan and stock performance. Charming Shoppes filed
suit against the dissident group, alleging it offered misleading
information in an SEC filing. The retailer said April 25 it had tapped Banc of
America Securities LLC and Lehman Brothers Inc. to explore options for its catalogs catering to female
twenty-somethings in order to stay focused on its Lane Bryant, Catherines and
Fashion Bug brands. Furniture Brands International Inc. Kicking off May days ahead of the Target news, Florida private equity firm Sun Capital Partners Inc. said it had won a months-long battle with Furniture Brands, and that the company's shareholders had elected three Sun Capital nominees to the company's board. Final results are expected around May 20. Sun disclosed in February it was trying to buy the St. Louis furniture company at a "substantial premium" to its $500 million market capitalization. The bid was rejected, so Sun went for a board overhaul. Dillard's Inc. Barington Capital Group LP's chairman and chief executive James Mitarotonda's longstanding activist campaign at family-run department store chain Dillard's reached a settlement late on April 1. Barington and fellow hedge fund, Clinton Group Inc., nominated a slate of four directors for the company's 12-person board. The retailer agreed to add one of his candidates, as well as three who were mutually agreed upon, and Mitarotonda agreed to call of his campaign. Barington again put the pressure on Dillard's in February, demanding in a letter dated Feb. 29 to see a list of the company's shareholders as it stepped up its campaign. The news came a month after Barington, Clinton Group and RJG Capital Partners LP, collectively holding nearly 5.32% of Dillard's, suggested measures to boost its value, particularly with respect to real estate assets. The January news came seven months after Mitarotonda sent a letter to the company's chairman and CEO William T. Dillard II about a meeting to talk about boosting profitability. Other retailers Barington had taken activist positions in included Stride Rite Corp., Steven Madden Ltd., Payless ShoeSource Inc. and Pep Boys-Manny, Moe & Jack, The Deal's Dave Shabelman noted. Syms Corp. And then there is discount clothing retailer Syms. The Secaucus, N.J., company in mid-February said it would re-register its stock with the SEC and relist on the Nasdaq after months of pressure from Barington and Esopus Creek Advisors, which collectively hold 9.8% of Syms. But Esopus wanted more. In late April, the investor pressured Syms to evaluate its real estate assets. The firms were opposed to the retailer's plans to delist from the New York Stock Exchange, which it did Jan. 14. Thanks to the pair's effort, Syms relisted on April 1. Syms argued the deregistration was aimed at avoiding new costs including Sarbanes-Oxley-related fees, while investors contended it was to lower the value of the stock price so management could carry out an MBO at a lower valuation. The agreement to re-register rendered moot a law suit that was brought in connection with the delisting. Sears Holdings Corp. and Eddie LampertMeanwhile, Eddie Lambert bought Sears and Kmart and mashed them together back in 2004. One thought was that even if the businesses foundered, the real estate would be worth more than the stores, Orol noted. He wrote at the time:
Lampert's recent attempt to purchase Restoration Hardware Inc. is in limbo at the moment; as the go-shop window was set to close Feb. 28, Sears upped its offer for Restoration to $4.55 per share, bettering an agreed-to $4.50 per share deal with buyout firm Catterton Partners. Restoration said it would move ahead with its sale to Catterton. And days later in a regulatory filing, Sears said it might consider a tender offer for the company or teaming up with Catterton. And as they travel in similar circles, Lampert and Ackman have run into each other. For Ackman, Stuart noted:
J.C. Penney Co. Carl Icahn, one of the original activist investors, in February confirmed he had taken a significant stake in J.C. Penney. A Wall Street Journal report ahead of the confirmation noted the stake was large enough to be counted among his top five investments. Icahn's may push the company to sell real estate to pay for a share buyback, Dealscape's Wurtzel noted. Icahn also has stakes in Children's Place Retail Stores Inc. and Blockbuster Inc. Home Depot Inc. And over at Atlanta-based DIY retailer Home Depot, Relational Investors LLC's Ralph Whitworth had a hand in unseating Bob Nardelli from the chief executive spot in January 2007. He argued the company should stop spending on the supply business (which it sold, under renegotiated terms, last year) and return money to shareholders and shake up the board. - Carolyn Murphy
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