Mysterious investor buys stake in Regis

  • Article by: THOMAS LEE
  • Star Tribune
  • February 13, 2012 - 9:32 PM

An opportunistic, activist investor recently purchased a large chunk of Regis Corp.

No, not Starboard Value LP, which won a contentious proxy war against Regis management last fall. This time, the investor in question is a little-known firm named Birch Run Capital.

Headquartered in New York, Birch Run recently bought an 8.3 percent stake, or 4.8 million shares, in Regis, according to documents filed with the Securities and Exchange Commission. That makes Birch Run the third-largest investor behind Fidelity Management and BlackRock Inc., which also boosted its position in the troubled Edina-based hair salon operator.

By contrast, Starboard, which controls three seats on Regis' board of directors, owns 5.4 percent.

Based on its scant history, Birch Run is no long-term investor, which makes its sudden, aggressive play for Regis stock somewhat puzzling.

Starboard, which seized control of Regis just three months ago, is quickly moving to cut costs, refashion the management team and sell off non-core assets like Hair Club for Men and Women. But even President Randy Pearce has told investors that it would take several years for Regis to right itself.

Daniel Beltzman, Birch Run's manager, didn't return a phone call seeking comment. Regis and Starboard also declined to comment.

There is little information on Birch Run. The investment firm was formed in 2006 and hoped to raise $300 million, according to SEC documents.

Court papers indicate that Birch Run paid $2.25 million in 2009 to acquire stock in Energy Partners, a Houston-based natural gas producer that had filed for Chapter 11 bankruptcy.

When Energy Partners proposed to eliminate all common shares, Birch Run rallied investors to oppose the company's reorganization plan. The firm conducted its own analysis and concluded that Energy Partners' assets were worth $212 million more than its liabilities.

The bankruptcy court ultimately agreed. In the end, the company awarded 5 percent of its reorganized stock to investors, netting Birch Run a profit of $1.25 million, bankruptcy records show.

As a result of Birch Run's efforts, investors received "treatment [that] was a vast improvement over the treatment that the equity holders would have received if the Initial [Reorganization] Plan had been approved," court documents say.

Thomas Lee • 612-673-4113

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