The latest letter sent by two large shareholders to the management of Dillard's (NYSE:DDS) mocks top management and criticizes the company for not buying out the family-controlled Class B shares.
Dillard's is an apparel and home furnishing retailer with 326 stores located in 29 states. The stores sell a mix of apparel, accessories, home furnishings, cosmetics and other consumer goods.
No Holds Barred
Barington Capital Group and the Clinton Group sent the letter to three directors of Dillard's, which stated:
- The chain "has not posted an increase in annual comparable store sales since Fiscal 1999".
- "The average three-year compensation paid to Mr. Dillard is 54% above the median paid to CEOs at peer companies," according to a study by Proxy Governance.
- When Dillard took over as CEO in 1998, the market capitalization of the company was $4.36 billion, compared to the less than $246 million today.
The latest same store sales figure for September 2008 was down 12% from the same period last year. The stock is selling at $4.07, down from a 52-week high of $23.42.
The letter served as a follow-up to one sent in September 2008 that asked the Dillard's board of directors to hold a special meeting to consider the repurchase "of the Class B shares by the company, permitting Dillard's to have a more customary capital structure". (To learn more about the effectiveness of your CEO, check out Is Your CEO Street Savvy?.)
Tilting At Windmills?
The activist investors may have a long fight ahead. When the company went public, a dual class structure was set up that makes it difficult to unseat the family from control of Dillard's. The Class A shares trade on the New York Stock Exchange (NYSE) and are widely held, while the Dillard family owns virtually all of the Class B shares through its ownership of the W.D. Company.
Although each share of Class A and B gets one vote, the Class B shares elect two-thirds of the board, while the Class A holders elect the balance. Also, 15% of the Class A shares are owned by the Dillard's, Inc. Retirement Trust, which is presumably under the control of the management of Dillard's. Three Dillard family members own another 7.1% of the Class A shares.
It seemed that the activist shareholders and Dillard's had come to a truce back in the April 2008, when management agreed to support the election of four Class A directors that had been recommended by Barington Capital Group, Clinton Group and Southeastern Asset Management, another large shareholder of the Class A shares.
Other companies that operate under this kind of dual structure include Playboy (NYSE:PLA), where founder Hugh Hefner owns 3.3 million of the Class A shares, or 69.5% of the outstanding shares, and 7.9 million Class B shares, or 28% of the outstanding shares. Only Class A shares get votes at annual meetings. The New York Times Company (NYSE:NYT) also has a dual class stock structure. A trust created in 1997 by descendants of the Sulzberger family owns 89.5% of the Class B shares, giving the family effective control of the company.
Another company that was targeted by activist investors recently is Target (NYSE:TGT), where hedge fund manager William Ackman is pushing for the company to monetize its assets.
Two large shareholders have fired another shot in the long-running battle to wrestle control of Dillard's from the family that has been at the helm for years.
To learn more about these nasty fights, read Activist Hedge Funds and Could Your Company Be A Target For Activist Investors?
Mutual Funds & ETFsLearn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
Investing NewsWill Ferrari's shares move fast off the line only to sputter later?
ProfessionalsUnderstand what a hedge fund is and why hedge fund managers make so much money. Learn about the top 5 highest paid hedge fund managers.
Investing BasicsUnderstand the hedge fund industry and why it has grown exponentially since 1995. Learn about the top six reasons why the industry underperforms.
Stock AnalysisHere are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
InvestingThe further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
Fundamental AnalysisOptions market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
ProfessionalsAlternatives have become a sexy choice for many advisors. But they also come with additional risks that are not always clearly spelled out to clients.
Stock AnalysisCan these two oil stocks buck the trend?
Investing NewsAlcoa plans to split into two companies. Is this a bullish catalyst for investors?
A hedge fund manager does not necessarily need any specific license to operate a fund, but depending on the type of investments ... Read Full Answer >>
A hedge fund analyst primarily provides support to a portfolio manager on how to best structure the hedge fund's investment ... Read Full Answer >>
Mutual funds are legally allowed to invest in hedge funds. However, hedge funds and mutual funds have striking differences ... Read Full Answer >>
When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>