Chico's rejects latest buyout offer - Southern Business Review

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Wednesday, June 26, 2019

Chico's rejects latest buyout offer

Southern Business Review
The third time isn't a charm for Sycamore Partners.
The board of directors for Chico's FAS has unanimously rejected a buyout offer from Sycamore — for a third time.
Late Thursday the women's retailer— headquartered in Fort Myers — announced its board voted in unison not to accept the latest unsolicited proposal received from the New York-based private equity firm.
On June 19, Sycamore offered to acquire all of the outstanding shares of Chico's FAS for $3 a share in an all-cash deal.
After reviewing the offer in consultation with its independent financial and legal advisers, the retailer's board determined it substantially undervalues the company and isn't in the best interest of shareholders. 
For the same reasons the board previously rejected two takeover bids for more money — $4.30 and $3.50 a share.
In a news release, David Walker, board chairman for Chico's FAS, said: "Our focus is on serving the best interests of all Chico's FAS shareholders, and we are pleased with the strong support we have received from numerous Chico's FAS shareholders for the actions underway to improve the company's performance."
He added that "shareholders have also expressed their belief that Sycamore's proposal significantly undervalues the company."
"We remain committed to enhancing value for all Chico's FAS shareholders.  We are making progress on our new operating priorities and the search for a new CEO, and will remain focused on continuing to execute in these areas," Walker said. 
In late April, Chico's announced the resignation of its president and CEO, Shelley Broader. Her abrupt exit from the public company was described as "an involuntary termination" of her employment, without cause.
Broader's resignation came as she was executing a strategic improvement plan she said was "taking hold" during an earnings call in March.
In January, the retailer announced plans to close 250 stores — and to further review its operations. 


The company ended 2018 in the black, but swung to a loss in the final quarter.
While the company searches for Broader's permanent replacement, it has appointed Bonnie Brooks, a board member for Chico's FAS, to serve as interim president and CEO.
Brooks, a former vice chairman, president, and CEO of Hudson's Bay Co., has sat on the Chico's board of directors since 2016. She has more than 30 years of global retail executive leadership experience.

More leadership changes

Chico's continues to make changes to its leadership.
Earlier this week, David Pastrana, brand president for White House Black Market left the company. In a filing with the Securities and Exchange Commission Chico's FAS said his exit was part of the company's efforts to refocus on the brand.
A search has begun to replace Pastrana. In the meantime, White House Black Market's current management will oversee the brand, along with Brooks.
Chico's FAS has four brands  – Chico's, White House Black Market, Soma and the newest, TellTale, a digital-first intimate apparel brand.  
Sycamore owns 6.5% of Chico's FAS's outstanding common stock, making it one of the retailer's largest shareholders. Sycamore's ownership equates to more than 7.64 million shares.
Sycamore came close to acquiring Chico's in 2015, but the Wall Street Journal reported the deal fizzled because Sycamore could not obtain financing.
Last week, Sycamore asked Chico's FAS to call a meeting of the shareholders to determine its voting power if it acquired 20 percent or more of the company's shares. Under Florida law, the voting rights for those shares can only be granted if approved by a majority of the other shareholders at a special meeting — unless the company opts out of the control share acquisition statute under the Florida Business Corporation Act.


A few days after Sycamore asked for a special meeting, Chico's announced it would change its bylaws to give its shareholders the right to vote all of their shares "period," so there wouldn't be a need for a meeting.
"This important action ensures that all of our shareholders have the voting rights we believe they deserve," Walker stated.
In other recent actions, Walker said Chico's FAS has improved its governance by: 
  • Completing the declassification process so all of the board's directors will be annually elected from now on.
  • Working to ensure diversity at all levels of the organization.  
  • Launching an active director review and board refreshment process. 
"This refreshment process considers changes in our strategy and the overall industry landscape, and helps ensure that the board continues to benefit from an appropriate mix of skills, experience and tenure to oversee the company, our strategic execution and our performance against this backdrop," Walker said.
While leadership is in flux, Walker said the company continues to execute on initiatives under its new operating priorities. 
In a first-quarter earnings conference call, Brooks said company leadership is working hard to right the ship.
"It is not business as usual," she said. "We know this company can do much better and we are committed to taking all of the required and appropriate steps to enhance our growth and value for our shareholders." 
The new steps include focusing on these priorities: 
  • Driving stronger sales through improved products and marketing
  • Optimizing the customer journey by simplifying, digitizing and extending the company's unique and personal service
  • Transforming the sourcing and supply chain operations to increase speed to market and improve quality 
With a renewed focus on customers, sales and the supply chain, management expects stronger sales across all its brands in the second half of the year. Many of the projects that were on the company's agenda have been dropped, so the leadership can give its attention to what's most important — driving sales, improving product and focusing on the customer, Brooks said.
The company reported lower profits and sales for the first quarter, when compared to a year ago. However, earnings beat Wall Street's expectations.
Some company watchers are more confident than others about the retailer's ability to turn itself around.
In a recent article published by Seeking Alpha, Josh Arnold, an independent trader, described the company as a "melting ice cube."
"Despite what looks like a cheap share price, I think there is more pain to come for Chico's and it looks to me like the stock should be sold," he wrote.