An activist investor requires a slate of latest administrators at attire retailer Genesco
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Firm: Genesco Inc. (GCO)
Inventory Market Worth: $742.9M ($49.66 per share)
Activist: Legion Companions
Common Price: $42.79
Activist Commentary: Legion is an activist investor whose companions are Chris Kiper, beforehand of Shamrock Activist Worth Fund, and Ted White, beforehand of European activist fund Knight Vinke. Legion prefers to do their activist work behind the scenes with resorting to a proxy battle if amicable discussions don’t go effectively. They’ve important expertise with client retail corporations.
What’s Taking place:
Legion despatched a letter to the corporate nominating a slate of the next seven director candidates for election to the corporate’s eight-person board on the 2021 Annual Assembly: (i) Marjorie L. Bowen, a personal investor and former board member at Genesco with a 20-year profession in funding banking at Houlihan Lokey; (ii) Thomas M. Kibarian, a contract advisor to personal fairness companies that put money into mid-cap retail and client wholesale companies and former CEO at Backyard Ridge (n/ok/a At House Group Inc. (HOME)), a house décor retailer; (iii) Margenett Moore-Roberts, chief inclusion & variety officer at IPG DXTRA, a worldwide collective of selling providers and company manufacturers and a division of The Interpublic Group of Corporations, Inc. (IPG); (iv) Daybreak H. Robertson, CEO of On Campus Advertising and marketing, LLC, a premier ecommerce web site for faculty college students and their households; (v) Patricia M. Ross, former govt advisor at Apple, Inc. (AAPL); (vi) Georgina L. Russell, former portfolio supervisor at Willett Advisors, LLC, an funding administration firm and (vii) Hobart P. Sichel, former CMO and EVP of Burlington Shops, Inc. (BURL), a nationwide off-price division retailer retailer.
Behind the Scenes:
Legion beforehand filed a 13D on the corporate on January 16, 2018, and their thesis was that the corporate ought to monetize sure enterprise segments and return capital to shareholders. On April 25, 2018, Legion and the corporate entered right into a cooperation settlement pursuant to which the corporate added two new administrators: Marjorie L. Bowen and Joshua E. Schechter to the Board. On December 14, 2018, the corporate introduced the sale of Lids Sports activities Group and that they’d be rising its share repurchases. On August 31, 2018, Legion bought under 5% and by March 31, 2019 was out of the funding fully. In consequence, Bowen and Schechter weren’t re-nominated for election on the 2019 annual assembly.
Legion makes some superb factors about enhancing shareholder worth, corresponding to de-conglomerizing and slicing overhead. Between promoting Schuh, Johnston & Murphy and potential related actual property, the corporate might make as a lot as $270 million. Even earlier than gross sales, the corporate has a wholesome stability sheet, so proceeds from these gross sales may very well be used to purchase again shares and proceed to lower the float. This would depart Journeys because the core enterprise, which might proceed to develop and generate important money move. Legion believes that if its plan is adopted, the corporate might have EPS of $7.50 by 2023 and double the inventory value of at this time. Nonetheless, these are the identical or comparable plans Legion had for the corporate in 2018, most of which didn’t get applied after Legion’s underwhelming activist marketing campaign the place it settled for 2 non-Legion administrators for one yr whereas it bought down its place.
This time, Legion is nominating seven people to the board out of eight attainable seats. They said that they aren’t seeking to substitute Mimi Vaughn as a director or as CEO and that Legion intends to vote for her and their nominees are ready to companion along with her with the intention to implement a strategic plan for Genesco. That is very refreshing, but when they’ve a lot confidence in her as CEO, why not give her a little bit extra time to implement a plan – she was simply named CEO in July of 2020. Furthermore, when you have confidence within the CEO and consider you may work along with her, why would you want seven of eight administrators on the board?
The corporate is likely to be underperforming its friends and the market, and there might need been errors made by administration. Legion’s plan simply might treatment a lot of that, however there may be nothing that this board or administration group has achieved that justifies changing a majority of the board. Whereas Legion’s plan is as soon as once more sturdy, there isn’t a purpose to suppose that they’ve any extra dedication to this marketing campaign than they did in 2018. For one factor, identical to final time, they aren’t nominating a Legion principal to the board. Whereas activists don’t at all times embody certainly one of their folks on board slates, it’s uncommon that one shouldn’t be included in a seven-person slate. Together with a Legion nominee would sign a long-term dedication, and that is much more necessary after their 2018 marketing campaign the place they began promoting 4 months after getting non-Legion administrators on the board.
Legion is a considerate, skilled investor with a very good plan that the corporate ought to strongly take into account. Nonetheless, implementing that plan mustn’t take greater than two or three new administrators, notably if certainly one of them was a Legion principal who could be round to see it via.
It’s not unprecedented for activists to focus on an organization a number of instances, however usually that doesn’t work out effectively for them. In a examine we carried out in 2019, we checked out 14 such conditions and within the first marketing campaign the activist averaged a 46.5% return versus a 6.3% return for the S&P 500. The second time round – the activist averaged simply 16.8% versus 28.6% for the S&P 500.
Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.