Axios Pro: Retail Deals

February 16, 2022

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🐫 We're nearly over this week's hump Retail Readers!

In the immortal words of Austin Powers, "allow myself to...introduce...myself." Michael Flaherty here, normally the editor/co-conspirator with Richard. Richard's out today, so I'm coming in from the bullpen like Ricky Vaughan.

📈 Situational awareness: This morning’s retail sales (+3.5%) tell us consumers and inflation are both moving up and to the right. 

1 big thing: A tale of 3 activists campaigns

Scott Ferguson, center, managing partner at Sachem Head Capital Management, at an activist panel at the SALT conference. Photo: Bloomberg

Of the several proxy fights going on in retail/consumer land right now, Sachem Head's activist move on US Foods has more in common with Dollar Tree's dissident headache than the board shakeup aimed at Kohl's.

Why it matters: All three activist campaigns seek majority control of the board.

  • So-called majority slate proxy fights are a big deal because if successful, the dissident directors voted onto the board will almost certainly replace the management team and push the company in a different direction.
  • Two of the campaigns (US Foods, Dollar Tree) focus on operational changes, while the other (Kohl's) is pushing for a company auction.
  • Index funds tend to back the operational maestros than those pushing a "for sale" sign.

Yes, but: Getting proxy advisory firms (ISS, Glass Lewis) to endorse full dissident slates is much harder than when an activist nominates two or three directors.

  • Trimming the slate to a minority of the board ahead of an AGM is a common activist tactic and could occur with any one of these campaigns. Peace negotiations surely remain on the table.

Catch up fast: Sachem Head Capital Management, led by founder Scott Ferguson, on Tuesday nominated seven directors to serve on US Foods' board. Activist Mantle Ridge nominated 11 directors at discount chain Dollar Tree in December. Macellum nominated 10 last week at Kohl's.

What they're saying: US Foods issued a lengthy response to Sachem Head after the majority slate move, throwing shade at the CEO the activist has in mind to run the company.

Of note: The founders of Sachem Head and Mantle Ridge both came out of Bill Ackman's Pershing Square, so they know their way around proxy fights.

The bottom line: The underperformance at US Foods and Dollar Tree is more apparent than Kohl's. Investors may be more likely to bless an activist slate with a long-term turnaround plan than a short-term auction.

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