Abercrombie & Fitch Buries Hatchet With Hedge Fund

The two sides put aside their differences and come to an agreement over board nominees.

May 2, 2014 at 10:27AM

Images

It's time to move on. Abercrombie & Fitch (NYSE:ANF) wisely decided it was better to switch than fight, and agreed to appoint to its board four new independent directors, a move recommended by activist investor Engaged Capital.

The looming proxy battle was gearing up to be a costly distraction for the teen retailer after the hedge fund operator very publicly opposed the path management set the company on and the man they chose to lead it forward. Yet with the rapprochement, the two sides have effectively set aside their differences and are looking toward the future rather than the past. And, fortunately for CEO Michael Jeffries, it's one that still includes him at the helm.

The agreement reached between Abercrombie and Engaged was the culmination of a long-simmering dispute over the retailer's long-faltering performance, the board's unwillingness to take corrective action, and the distraction Jeffries had become. The hedge fund charged that Abercrombie's leading position in teen retailing had not translated into returns for investors and that failure was a consequence of those running the business. Having lost confidence in Jeffries to do what was necessary to fix what was broken, it called for his ouster.

Instead, the board thumbed its nose at Engaged, adopted a poison pill defense to further entrench management, and then signed on Jeffries to a new contract months ahead of when it was necessary to do so. But it also began to reel in the worst excesses, clipping Jeffries' wings by splitting the role of chairman and CEO and saying it would appoint three new independent directors. Although those were steps in the right direction, the hedge fund wanted more and launched a proxy fight to have five candidates elected to the board.

I'll admit to thinking Engaged had an uphill climb in its battle. Although its arguments for change were seemingly sound, with a less than 1% ownership stake in the company, it didn't seem the hedge fund could mount an effective campaign, yet the agreement announced the other day proves it's possible to enable change with a persuasive argument.

The teen retailer agreed to nominate three retail executives and a former global director of retail for Ernst & Young. In return for the hedge fund ending its proxy fight, Abercrombie will nominate Bonnie R. Brooks, vice chairman of the Hudson's Bay Company; Sarah M. Gallagher, a former executive at Ralph Lauren; Diane L. Neal, the former chief executive of Bath & Body Works; and the accounting firm's Stephanie M. Shern. . 

But to allow the new members to be seated without a fight, four current members had to agree not to stand for reelection. They were Lauren Brisky, a former Vanderbilt University executive; Kevin Huvane, a partner at Creative Artists Agency, an entertainment and sports agency; Jack Kessler, a real estate development company executive; and Elizabeth Lee, a private school administrator. 

The new additions mean 11 of the board's 12 directors are considered independent, but more important, it will now be comprised of individuals with actual retail experience. While Michael Jeffries won a reprieve as well with the deal, Engaged Capital has done Abercrombie & Fitch shareholders a favor by clearing the decks, holding management's feet to the fire, and focusing the board's gaze on its future.

Reliable management teams have been a key to Warren Buffett's success
Warren Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

Editor's note: A previous version of this article stated that the new directors were nominated by Engaged Capital. The Fool regrets the error.

Rich Duprey owns shares of Abercrombie & Fitch Co. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers