Talbots (NYSE: TLB ) has adopted a poison pill in response to private equity firm Sycamore Partners' grabbing a 9.9% stake in the company. Investors with a front-row seat to this potential fight better familiarize themselves with the common steps and fancy footwork typically taken in such challenges.
Earlier this week, Sycamore Partners and its related entities, along with retail veteran and investor Stefan Kaluzny, stated in a Securities and Exchange Commission filing that Talbots' stock was "undervalued and is an attractive investment."
Kaluzny & Co. further noted in the filing: "The Reporting Persons expect to engage in discussions with management, the board, other stockholders of the Issuer and other relevant parties concerning the business, assets, capitalization, financial condition, operations, management, strategy and future plans of the Issuer."
This is largely boilerplate rhetoric, designed to grab the attention of a company's board of directors; its larger investors, who may want to have a fireside chat and serve as an ally down the line; and investment bankers who may want to start planting seeds with their clients regarding the attractiveness of the company's assets.
In response, Talbots announced Tuesday that it had adopted a shareholder rights plan that acts as a "poison pill." With a poison pill, companies can unleash a torrent of additional shares and flood the market, should an unwelcomed suitor or investor acquire a certain level of shares in the company. The additional shares dilute the ownership stake of the aggressive investors.
Talbots' trigger is a stake of 10% or more.
"The board of directors adopted the Rights Plan to promote fair and equal treatment of the Company's stockholders in light of a recent rapid accumulation of a significant percentage of the Company's outstanding common stock," said the company.
Piling up the pills
Since the start of this year, 44 companies have adopted poison pills, 66% of which were put in place to address a specific threat or circumstance, says John Laide, vice president of corporate governance for FactSet Research Systems. Last year, that ratio was 60%, marking the first time specific issues drove the adoption of more poison pills than routine matters did.
Source: FactSet Research Systems.
In the past two weeks, Clorox (NYSE: CLX ) and Transatlantic Holdings (NYSE: TRH ) adopted poison pills after receiving unsolicited buyout offers, while Breeze Eastern and Commercial Metals (NYSE: CMC ) adopted their poison pills after activist shareholders came on the scene, according to FactSet Research Systems.
Kaluzny & Co. options
In Talbots' case, Sycamore and Kaluzny may offer up a restructuring plan and try to force the board to act on it. If the board fails to respond, Sycamore and Kaluzny could seek the support of other investors.
One last measure investors can take is to present an opposing slate of directors when a company holds its next annual shareholders' meeting. However, investors are frequently loath to replace a majority of the board with interlopers and instead prefer withholding their votes as a sign of discontent, say proxy solicitors.
Talbots' investors aren't happy campers. The stock is down 67% over the past 12 months and has underperformed the broader markets. Although Talbots' stock soared 17.6% on news of Sycamore's sizable stake in the company at Monday's close, it came to earth the following day, tumbling 10.6% to close at $3.64 a share.
Despite the potential for Sycamore and Kaluzny to rally investors their way, FactSet's Laide says Sycamore Partners is not known for engaging in a practice called shareholder activism. Sycamore and Kaluzny are primarily known as a buyout firm, rather than shareholder activists.