UPDATED: James Mitarotonda Pleased With Dillard's, Barington Agreement

by Lance Turner and Mark Friedman  on Wednesday, Apr. 2, 2008 9:45 am  

Above, Dillard's CEO William Dillard II. Dillard's Inc. of Little Rock has reached an agreement with Barington Capital Group over Barington's efforts to elect four nominees to Dillard's board of directors.

"We are pleased to have reached an agreement with Barington and Clinton. Both the board and management welcome the perspectives and insights of our proposed new directors," Dillard said in a news release. "The Class B board members are committed to working with the new Class A board members to ensure that the best operating plan and management team possible are in place."

Also part of the agreement: A review of Dillard's real estate portfolio, to see "whether the company's real estate assets and capital are being optimally deployed to prudently build the most value per share for long-term owners."

That includes plans to close underperforming stores, cut unnecessary costs and "subject all future commitments for new stores to strict return on capital requirements that will be set by the board and management."

Dillard's management of its real estate portfolio has been a key point of contention with Mitarotonda, who had said Dillard's could improve the value of the real estate by closing unprofitable stores or selling some of its property.

Mitarotonda has pointed to a November 2007 Deutsche Bank report that estimates Dillard's net asset value before taxes to be $59 per share because of its real estate portfolio. Dillard's owns about 75 percent of its 331 stores.

On Wednesday, Mitarotonda indicated that operating efficiently, especially when facing the challenge of a sluggish economy, is important.

"Consumers are having a very difficult time, again more of the reason that business, especially retailers, need to operate more efficiently," Mitarotonda said. "As long as retailers operative efficiently and provide outstanding merchandise, I think they'll do well."

Making Peace

Dillard's agreement is with Barington and another firm, Clinton Group Inc., who together represent about 5.6 percent of outstanding Dillard's shares.

Dillard's said it reached the deal in conjunction with Southeastern Asset Management, which last month said it wanted to work with Dillard's to improve Dillard's governance and management.

Southeastern Asset Management owns a 12.9 percent stake in Dillard's, about 9.2 million shares. The company said last month that it had held discussions with Dillard's management and other third parties, including another shareholder, about opportunities to increase shareholder value.

Tuesday agreement comes after months of criticism from Barington, which first bought into Dillard's shares last year. In one letter to Dillard's, Mitarotonda questioned Dillard's commitment to its shareholders and blasted its board of directors, which Mitarotonda said "relegated its responsibilities to the Dillard family, permitting them to run the Company as if it was the family's private domain - insulated from the influence, and often with a lack of concern for the interests, of the Company's public stockholders."



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