A New York hedge fund that owns a big stake in Pier 1 Imports wants seats on the company’s board of directors and is threatening to ask shareholders to force changes, according to a letter sent to the Fort Worth-based retailer’s board.
The letter from Alden Global Capital requests that the nine-member board add its president, Heath Freeman, to help in its search for a new CEO and then add other directors. If the board refuses, Alden said it might pursue a consent solicitation seeking to replace current board members.
In response, Pier 1 said it’s in dialogue with Alden, having had five recent meetings and phone calls. But it said the Alden board’s ultimatum is “not constructive and could erode shareholder value by undermining the company’s announced CEO search and disrupting its business in the holiday selling season.”
“Pier 1 Imports has a highly qualified, diverse board with significant retail experience which was re-elected with greater than 98 percent approval by our shareholders at our annual meeting less than four months ago,” the company said.
Last month, Alden Global Capital disclosed that it had acquired a 9.5 percent stake in Pier 1 stock and would push for changes. Pier 1 has been struggling with stagnant sales and eroding profits.
In his letter, Freeman said he met twice with Pier 1 Chairman Terry London and top executives in recent weeks, including Oct. 4 at the Fort Worth headquarters.
He said shareholder representation on the board is “imperative” as it selects a new CEO to replace Alex Smith, who siad last month that he will leave the company and the board at year’s end.
“We have identified several external candidates with the requisite industry experience, leadership skills, and track record of creating shareholder value who could ably serve as directors of Pier 1,” Freeman said in the letter. “We disagree with your laissez-faire approach to board responsibilities and believe the company would benefit from the rigor, direction, and shareholder-alignment that comes with having an ‘ownership perspective’ on the board.”
He said the Pier 1 board doesn’t have enough “skin in the game,” collectively owning just 0.5 percent of Pier 1 shares. He added that London has never directly purchased Pier 1 stock despite having served on the board since 2003.
About a week after Alden disclosed its stake, Pier 1’s board adopted a “poison pill” shareholder-rights plan, a takeover defense that would allow shareholders to buy more stock if a stakeholder gains 10 percent, which would make a buyout more expensive.
Freeman called the poison pill “a clear overreaction.”
In recent years, Alden Global Capital has bought into struggling newspaper companies, including Digital First Media, which owns papers including the Los Angeles Daily News, The Denver Post and The Orange County Register. A union representing newspaper workers has criticized the investors for selling real estate, slashing staff and outsourcing work.