Activist Investor Takes Issue With Dillard's; Signs Indicate Upcoming Proxy Battle

by Mark Friedman  on Monday, Mar. 3, 2008 12:00 am  

At first, James Mitarotonda asked nicely for Dillard's Inc. to change its management.

In a June 28 letter, Mitarotonda asked Dillard's CEO William Dillard for a meeting to discuss several ways to improve the company, including better merchandising and unlocking the value of Dillard's real estate portfolio.

But Dillard didn't even return a call to Mitarotonda, the CEO of Barington Capital Group LP of New York, which represents a group of investors who own more than 5.3 percent of the outstanding Class A common stock of the Little Rock retailer.

After the June letter was ignored, Mitarotonda fired off a letter directly to Dillard's board in August. It was a scathing missive that called Dillard's corporate governance "nothing short of atrocious." The board, too, refused to respond.

On Jan. 29, Mitarotonda wrote the board yet another letter. This one said Dillard's needed to improve its management to increase its shareholder value.

Between June 30 and Jan. 25, Dillard's stock price dropped 52 percent, wiping out more than $1.5 billion in shareholder value, Mitarotonda wrote. During the same period, the S&P Retail Index fell by 23 percent, he also noted.

And this time, the letter ended with a veiled threat.

"As significant stockholders of the company, we are committed to taking all actions necessary to enhance shareholder value," Mitarotonda wrote.

The letter didn't say what action would be taken, and Mitarotonda declined to comment last week. 

But Barington's history suggests a proxy fight is coming, said Patrick McGurn, special counsel for RiskMetrics Group of New York, which provides corporate governance research and proxy voting advice to large institutional investors.

"Barington Capital is an experienced player in this field," McGurn said. "They've been doing this for a while now, and I think they know the drill. First you sort of agitate and then you ... threaten a proxy fight."

If a proxy fight occurs, most likely Barington would urge shareholders to use their proxy votes to install Barington's candidates on the board of directors.



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