Regis Corp. chairman, CEO to leave

  • Article by: THOMAS LEE and PATRICK KENNEDY , Star Tribune staff writers
  • Updated: October 4, 2011 - 8:36 AM

Company will promote veteran as it explores the possible sale of its Hair Club business.

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Regis Salon at the Nicollet Mall and 6th St. in Minneapolis

Photo: David Brewster, Star Tribune

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Facing mounting pressure from Starboard Value LP, Regis Corp. said Monday that it will accelerate cost cutting, explore the sale of its Hair Club for Men and Women business and make several leadership changes.

Longtime Chairman and CEO Paul Finkelstein will step down from both positions in 2012 and not run for re-election on the board. Regis had previously said Finkelstein would remain as executive chairman.

President Randy Pearce will replace Finkelstein as CEO next February, and the board will appoint an independent chairman in July.

Starboard, a New York-based activist hedge fund that owns 4.4 percent of Regis, launched its campaign in August, blaming the company's weak stock price on a "bloated cost structure and lack of operational focus." Specifically, the fund wants Regis to pare its workforce, reorganize its North American business units and sell off its international operations and its Hair Club restoration centers.

"We strongly believe that Regis should dramatically reduce operating expenses, exit its non-core businesses, and focus on its core North American salon business," according to a letter Starboard sent to Finkelstein and Pearce.

In Monday's proxy filing, Regis appears to have conceded to Starboard on several fronts. The company said it hired Merrill Lynch to see if Regis can sell its Hair Club business. If so, Regis said it would use the money to return excess cash to investors through a dividend or stock buyback.

Regis also said it would seek $40 million to $50 million in cost reductions over the next two fiscal years. The company is looking to save $20 million to $30 million in its current fiscal year.

But Regis' most surprising move was Finkelstein's departure from the company, something Starboard did not explicitly demand. But it was clear Starboard was not happy with Finkelstein's leadership.

Louis Meyer, an analyst with Oscar Gruss & Son Inc. in New York, said Pearce should be in a better position to adopt some of Starboard's suggestions. "You get the sense [Pearce] is a little more of a hands-on numbers guy and that might be what's necessary," he said.

Meyer suggests that Pearce might not have the same emotional attachment to some of the past business decisions and that should free him to adopt changes, including the recommendation to sell the Hair Club for Men business.

"The stock was $40 a couple years ago, today it is $15," Meyer said. "I don't know who wouldn't be open to some suggestions."

Regis closed today at $13.93, down 16 cents or 1.1 percent. The stock's 52-week high was $21.69 on Nov. 10, 2010, and its 52-week low was $12.46 last month.

But it is not clear if Starboard is completely satisfied. The hedge fund had demanded about $100 million in cost cuts plus the sale of Regis' international businesses, including 400 salons it operates in the United Kingdom and the minority stakes it holds in Provalliance, a chain of 2,760 salons in Europe. Starboard also wants Regis to divest its stake in Empire Education Group, a chain of 102 cosmetology schools in the United States. Regis did not directly address those issues.

In addition, the company's slate of six nominees to the board of directors did not include any of Starboard's candidates. Starboard's nominees include Starboard CEO Jeffrey Smith; former Charming Shoppes CEO James Fogarty, and David Williams, who previously served as executive vice president of Chemed, a provider of hospice care, repair, and maintenance services.

In an e-mail to the Star Tribune, Williams said he will not comment on Regis' plans until after Starboard files its response to the company's proxy. He did not say when that will happen.

thomas.lee@startribune.com • 612-673-4113 pkennedy@startribune.com • 612-673-7926

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