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.

James Mitarotonda, the hedge fund investor who has criticized Dillard's Inc. of Little Rock since last summer, on Wednesday told ArkansasBusiness.com that he's pleased with the agreement his firm reached with the department chain on Tuesday.

Dillard's announced Tuesday after market close that it had reached an agreement with Barington Capital Group and ally Clinton Group Inc. over their efforts to elect four nominees to Dillard's board of directors. The move avoids what had been a looming proxy fight at Dillard's annual meeting May 19.

"The company has added four strong independent directors," Mitarotonda said Wednesday. "It appears to me that the company is committed to taking action to improve shareholder value."

Shares of Dillard's rose on the news, up more than 8 percent by 9:45 a.m.

Per the agreement, one of the four people Barington said it wanted on Dillard's board - Nick White, president and CEO of White & Associates and a former executive vice president and for Wal-Mart Stores Inc. - will be among a new group of four nominees that Dillard's is recommending shareholders elect.

The other nominees are:

  • James A. Haslam, III, CEO of Pilot Travel Centers LLC
  • R. Brad Martin, former chairman and CEO of Saks Inc.
  • Frank R. Mori, Co-CEO and president of Takihyo Inc., former president and CEO of Anne Klein Inc. and former CEO and founding Partner of Donna Karan International

The new slate of nominees does not include Mitarotonda, who was among the four nominees Barington previously said it would nominate to the Dillard's board.

On Wednesday, Mitarotonda said Barington has had "positive discussions" with Dillard's CEO William Dillard II and representatives of the retailer, which "resulted in an outcome that we felt was favorable for all of the shareholders."

For months, Dillard's barely acknowledged the criticism from Barington and Mitarotonda, which Barington laid out in several letters made public in filings with the U.S. Securities and Exchange Commission.

Mitarotonda wouldn't comment Wednesday on what had changed.

Dillard's 'Welcomes' New Insights

According to Dillard's statement, Barington and Clinton "have agreed to cease their efforts to elect a slate of four nominees" to the Dillard's board and "to vote for the election of the company's nominees," according to Barington's statement.

"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."

Dillard's has yet to file its latest proxy. Members of its board of directors, listed below, include members of the Dillard's family and company executives, as well as Little Rock financier Warren A. Stephens and former U.S. Rep. John Paul Hammerschmidt.

The new nominees are for Class A director seats. Current Class A directors are Robert C. Connor of Dallas; Will D. Davis, a partner at Heath Davis & McCalla Attorneys of Austin, Texas; Peter R. Johnson, chairman of PRJ Holdings Inc. of San Francisco.; and Hammerschmidt.

Dillard's Board of Directors

  • Robert C. Connor of Dallas
  • Will D. Davis, Partner, Heath Davis & McCalla Attorneys, Austin, Texas
  • James I. Freeman, Senior Vice President and Chief Financial Officer of Dillard's
  • John Paul Hammerschmidt, Retired Member of Congress, Harrison
  • Peter R. Johnson, Chairman, PRJ Holdings, Inc., San Francisco
  • Warren A. Stephens, President and Chief Executive Officer of Stephens Inc. and Co-Chairman of SF Holding Corp., Little Rock
  • William H. Sutton, Of Counsel, Friday Eldredge & Clark, Attorneys, Little Rock
  • J.C. Watts Jr., Former Member of Congress & Chairman of the J.C. Watts Companies, Washington D.C.
  • Drue Corbusier, Executive Vice President of the Company
  • Alex Dillard, President of the Company
  • Mike Dillard, Executive Vice President of the Company
  • William Dillard II, Chief Executive Officer of the Company
(Click here (PDF) for a chart on Dillard's board, including photos and recent compensation.)

More On the Barington-Dillard's Relationship

Mitarotonda's Barington Group Wants Four Directors on Dillard' Board

In New Letter, Barington Asks Dillard's for Records, Meeting Minutes

Dillard's Restates Earnings Due to 'Error' in CDI Accounting

Barington Capital's Moves on Dillard's Hint at Coming Proxy Fight

Barington Capital Asks Dillard's for Shareholders List

Barington Fires at Dillard's, Cites 'Chronic Underperformance'

Fortress Dillard's: A Thorn in the Side of Investors, Analysts



Please read our comments policy before commenting.