There’s likely to be more dueling via shareholder letter over the next few weeks between the board of ValueVision Media and the hedge fund that wants the board tossed. But there’s easily enough known already to recommend how to vote.
It’s hard to side with the board of a hometown company when it hasn’t reported an annual profit in a very long time. The current leadership should get credit for there even being a company today to fight over, but nothing in its plan suggests that ValueVision won’t stay in distant third place in a two-company home TV shopping industry.
Meanwhile, supporting the activist shareholder Clinton Group means a vote for a fund that’s less an investor than a stock trader. Its business is carefully screening stocks to find one where turning up some heat generates some appreciation.
Its plan for ValueVision is mostly to bring a little Hollywood flash to ValueVision’s product offerings and its Eden Prairie headquarters, including a legendary music producer. Impressive, in a way, although it seems safe to bet against the debut anytime soon of a Beyoncé shopping show.
Clinton is not to be underestimated, however, as the New York-based firm is one of the hottest activist investment firms, according to data prepared by a publisher called Activist Insight that tracks appreciation after an activist first discloses its interest.
Clinton is headed by a personable Harvard Law School grad and Wall Street veteran named Greg Taxin. While a phone call with Taxin is certainly pleasant, his is not a profession for people who aren’t comfortable with conflict.
The gist of the first substantive conversation between Clinton and officers of the company, as outlined in Securities and Exchange Commission filings, was that CEO Keith Stewart should be fired — and could he please arrange for Clinton to talk to the directors?
Clinton and its affiliates have since then filed thousands of words. While Taxin couldn’t help but point out in a shareholder letter last week that he was “gravely disappointed” that the company had lost money in 20 out of the last 21 quarters, his case for replacing the board can be boiled down to this: can’t ValueVision be far more ambitious?
The competitor HSN generates $24 of sales per year per household that gets its shows, according to Taxin, while ValueVision generates $7.
Taxin is careful to point out that he doesn’t have a CEO lined up, as that’s the board’s call. What he is trying to do is elect a new board, and there’s a certain glitz factor to his slate of nominees.
One of them is Thomas Beers, the CEO of the producer of TV shows such as “American Idol” and “America’s Got Talent” and the creator of shows like “Ice Road Truckers.” Another nominee is Tommy Mottola, the former CEO of Sony Music Entertainment.
Taxin said the company should develop a new merchandising strategy around celebrity-endorsed products presented in a compelling visual style inspired by the kind of reality TV programming that Beers has helped create.
That’s why Clinton has asked for an office to be opened in New York. No offense intended to Minnesota, Taxin said, but “it is not easy in Minneapolis to do a deal with Katy Perry.”
Taxin said this approach doesn’t sound risky to him; what’s risky is doing more of what ValueVision is doing now.
It must be said, if Clinton’s slate gets voted in, the limousine business in the Twin Cities should expect a surge in revenue.
Longtime analyst Robert Routh, who has followed ValueVision for years with various investment firms, said he has no real opinion on Clinton’s case other than that criticism of Stewart simply isn’t fair.
That is, if any shareholder considers the mess he inherited.
Just before Stewart was named CEO in early 2009, the company had gone through a couple of chief executive changes. It had just tried and failed to find a buyer. The day he was announced as the new boss, the stock closed at 29 cents per share.
In the most recent fiscal year, the company did not reach profitability on the net income line, but it did have earnings before interest, taxes, depreciation and amortization, or EBITDA, that dramatically increased from the prior year, to $12.7 million.
The best that can be said now is that ValueVision stayed in business. The estimate Piper Jaffray & Co. has for the current fiscal year is earnings of just 4 cents per share.
But staying in business means the stock no longer trades for 29 cents, and by the time Clinton showed up in fall 2013 the stock had recently traded at more than $6. “Where were these guys when the stock was 18 cents?” Routh asked.
Routh likened ValueVision’s proxy fight to watching a football team execute a long drive, finally getting the ball inside the opponent’s 1-yard line. Only then do the second stringers demand to be put in the game so they can fall forward with the ball a couple of feet to score and claim credit for the victory.
It’s also fair to point out that there are plenty of recent examples of situations in which the activist succeeded in changing the team, only to have the new team fumble the ball.
Activist William Ackman’s firm emerged as a big investor in J.C. Penney Co. several years ago, and he helped bring aboard former Apple executive Ron Johnson to run it.
Rather than being renewed with the fresh thinking Johnson brought from Apple, J.C. Penney under Johnson was a disaster, and for Ackman too. When he resigned from the board last summer and his funds sold, the loss was just under a half-billion dollars.
Clinton appears to have done well, but even one of the high-profile wins against an incumbent board that Taxin talked about last week is far from being a clear victory. That’s at a California retailer called Wet Seal, where four directors left the board in favor of four of Clinton’s nominees.
That was in October 2012, when Wet Seal shares were trading at $3.14 per share. Last week they traded for $1.04.
“My assessment is … it would have been worse without them,” Taxin said, of the directors he got elected to Wet Seal’s board.
In my experience, saying “it could have been worse” never really makes investors feel any better.
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