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UPDATE 1-Chico's makes corporate governance changes as proxy fight kicks off
May 26, 2016 / 4:11 AM / a year ago

UPDATE 1-Chico's makes corporate governance changes as proxy fight kicks off

(Adds quote from Chico’s analyst, quote from activist analyst, Barington no comment)

By Michael Flaherty and Sruthi Ramakrishnan

May 25 (Reuters) - U.S. womenswear firm Chico’s FAS Inc on Wednesday made changes to its corporate governance structure and proposed electing board members annually, in a move to get shareholders on side amid a proxy fight.

Declassification of a board, as the move is known, is viewed as a shareholder-friendly measure that ensures the entire board is held accountable by investors on an annual basis, rather than staggering directors’ terms. Shareholders will vote on the proposal at Chico’s July 21 annual meeting.

The proposal and other measures follow the start of a proxy fight by activist hedge fund Barington Capital, which owns 1.4 percent of the stock and wants the Fort Myers, Florida-based firm to reduce what it calls substantial corporate overhead.

New York-based Barington declined to comment on the plans.

Ken Squire, the founder of research service 13D Monitor, which tracks activist campaigns, noted that Barington was an experienced activist fund known to create value in the retail sector.

“They’re not going to start a proxy fight unless they’re willing to go the distance,” he said.

Chico’s aims to declassify its board over three years, resulting in all directors standing for election at its 2019 annual meeting.

While subjecting directors to an annual vote makes a company more vulnerable to activist hedge funds seeking a seat, longer-term institutional investors, which hold heavy voting power at annual meetings, view the move favorably.

The company also said it had appointed Susan Lanigan, a former senior executive at Dollar General Corp, as general counsel. She participated in recent discussions centered on its corporate governance, which resulted in the board declassification recommendation.

Wolfe Research upgraded Chico’s stock on Wednesday to “peer perform” from “underperform,” saying new CEO Shelley Broader, who started in December, was driving operational changes and noting the pressure from Barington.

“Bad news appears to be sufficiently priced into the stock,” Wolfe analyst Jennifer Adkins, citing the management team’s focus on reducing store count and new customer initiatives. The stock closed up nearly 1 percent to $10.85.

Barington has nominated two candidates, including its chief executive officer, James Mitarotonda, who was a Jones Group director before the retailer was acquired in 2014.

Chico’s said on Tuesday that it would nominate Hudson’s Bay Co Vice Chairman Bonnie Brooks and former Walmart U.S. CEO Bill Simon to run for election to its nine-member board.

Reporting by Michael Flaherty in New York and Sruthi Ramakrishnan in Bengaluru; Editing by Lisa Von Ahn and Edwina Gibbs

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