Abercrombie & Fitch Buries Hatchet With Hedge Fund

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.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2940831, ~/Articles/ArticleHandler.aspx, 9/2/2015 1:05:18 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


Today's Market

updated Moments ago Sponsored by:
DOW 16,252.37 194.02 1.21%
S&P 500 1,930.73 16.88 0.88%
NASD 4,692.93 56.82 1.23%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/2/2015 12:49 PM
ANF $20.30 Up +0.25 +1.25%
Abercrombie & Fitc… CAPS Rating: *