Tuesday, January 28, 2014

News Now! | Abercrombie & Fitch Corporate Governance 2014 Revisions...

Mike leaving after a visit to A&F Paris which recently suffered from fire damage.
Image used for illustrative purposes only.  |  (image source)
         IN CONTINUANCE OF game-changing actions to improve and optimize the health of its corporate organism during these unprecedented critical times, Abercrombie & Fitch Co. has now executed new landmark adjustments to its corporate governance. In effect, these "enhancements" are in furthermore intent of alleviating the alarming investor pressure and of warding off any of its potential undesired consequences.

In a historic move for leadership in the modern Abercrombie & Fitch era, the joint position of Chairman & Chief Executive Officer (CEO), under the incumbance of one exectutive, has now been split apart. Hitherto this decision, the joint position gave the incumbent executive – namely, Michael "Mike" S. Jeffries – sharpened omnipotence over the entirety of the corporate body as, in combination of being CEO in top-rank over all corporate operations, he also sat in and chaired the Board of Directors which oversees the activities of the Company. Thus, while the positions of a Chairman and a CEO separate allow for a sort of heightened corporate checks-and-balances system, the joint office of Chairman & CEO granted, as aforementioned, significant omnipotence which has now been diluted.

Henceforth, Mike will now remain exclusively in his pivotal role as CEO in line with his newly revised employment agreement and will continue to hold his seat on the Board of Directors. Meanwhile, newcomer to the Company, Arthur C. Martinez, has been named as the new (Non-Executive) Chairman of Abercrombie & Fitch Co.

" Arthur Martinez brings extensive sector expertise, deep boardroom experience, and valuable perspectives to the new role of Non-Executive Chairman. I am confident that he is the right choice to lead the Board of Abercrombie & Fitch as we execute against our strategic plans and move in to the next phase of the Company's growth. " – Mike, 28 January 2014

As Non-Executive Chairman, Martinez now sits and leads the A&F Board of Directors and can provide, by general definition of the office, advice to the CEO though Martinez will not partake in the management of the Company.

" I am honored to join the Board of Abercrombie & Fitch and take on the role of Non-Executive Chairman. This is a company with iconic global brands, highly talented employees and tremendous potential. I look forward to working with Mike, the other members of the Board, and the management team to build on the Company's brand positioning and global appeal, and create long-term value for shareholders. " – Arthur Martinez, 28 January 2014

Along with this momentous development in regards to corporate governance, the A&F Board of Directors has been extended from nine to twelve seats with the introduction of Terry Burman and Charles R. Perrin apart from Martinez. ("Terry and Charlie also bring extensive boardroom and retail experience and, along with Arthur, will be outstanding additions to the Abercrombie & Fitch Board. I could not be more excited to welcome them to Abercrombie & Fitch," admitted Mike). As the Company stated, the individuals qualify as independent directors under the New York Stock Exchange listing standards. Independent directors are those who sit on the Board of Directors but do not have a material relationship with the Company or related persons, except for sitting fees, and own no company shares.

Furthermore, Craig Stapleton has been retired from his position of Lead Independent Director though he will continue on the Board and as Chair of the Nominating and Board Governance Committee.

Finally, Abercrombie & Fitch Co. has done away with its flip-in Shareholder Rights Plan. In such a plan, the company issues "rights" to shareholders to gain large numbers of stock when anyone nears more than the amount the target (the company) of the bidder (for a takeover) holds. In effect, the value of stock is diluted with a flood of stock at bargain and makes it expensive for the bidder to purchase enough stock to gain a majority hold to gain the target. Subsequently, the bidder finds the only way is to negotiate directly with the Board or abandon. This is why a shareholder rights plan is called a company's "poison pill" in the industry.

However good it may sound for its defensive reasons, shareholders rights plans are manipulative, controversial, and the legality of the practice is shaky in matters of messing with stock – it is blocked against by the UK's Panel of Takeovers and Mergers which defines itself with the "central objective [to] ensure fair treatment for all shareholders"; frowned upon and on uncertain ground in continental Europe; and in the United States, among others in the nation, the Supreme Court of the state Delaware has itself upheld shareholder rights plans as valid since 1985.

It just so happens that the modern Abercrombie & Fitch Co., while holding headquarters in New Albany, Ohio, was initially incorporated in 1996 (back when it first went public) in Delaware where a majority of American public companies are incorporated. More to the point: in late-2010, Abercrombie & Fitch wanted its shareholders to approve a reincorporation in Ohio for the Company where, instead of Delaware's 15%, the trigger for poison pills is at 10%. The Company made this move at a time which Steven Davidoff for The New York Times noted as being when "news is announced in the hope that no one will notice" and furthering that "[you] can’t help but think that this was Abercrombie & Fitch’s intention with its filing" (and it, too, did not even issue a news release). The Company had listed three other reasons first – all of which Davidoff found unconvincing and questionable – before it stated in the fourth reason that "reincorporating into Ohio would provide the company with an opportunity to address a number of corporate governance matters in a manner that we believe appropriately protects and benefits the company and its stakeholders." And that Davidoff interpreted as the real reason for the reincorporation plan: stricter control over potential acquisitions. ANF stock subsequently took a great decline (which lasted for a month) after having experienced its highest peak since the stock's plunge during the Great Recession. The Company remains incorporated in Delaware.

Now during these trying times, and in light of continuous epic changes in search for a betterment of its fortunes during this difficult situation, on Monday, 27 January 2014, Abercrombie & Fitch Co. executed Amendment No.3 to the Rights Agreement, under Delaware law, and set the termination date to its Shareholder Rights Plan to January 28.

The termination of the A&F Shareholder Rights Plan changes the game and "could [now] make it easier for the company to pursue a sales process [...or also] make it easier for any potential buyer to come in quickly and take the company private.."

By the midmorning trade on the NYSE, ANF stock rose to US$36.84 (+6%).

Richard Jaffe (of the full-service brokerage and investment banking firm, Stifel) stated:

" The new board members have demonstrated an openness and willingness in the past to explore all opportunities that are in the best interest of shareholders, and we believe that will be the case for Abercrombie. "

Engaged Capital (which has been the most vocal in terms of its gross disapproval of Mike's leadership and called for his sacking before his contract revision) expressed over the entirety of the actions:

" While a good first step, we believe these reactive changes alone will not be sufficient to put the company back on a course towards creating shareholder value,” the firm said. “It is imperative that the board, independent of management, objectively evaluate value-maximizing strategic and organizational changes at all times, and not just when convenient to placate shareholders. "

And Simeon Siegel (of New York-based Nomura Securities) also opined on the overall changes:

" This is just a continuation of their response to the Engaged [Capital] letter, and this is [the Company's] way of ‘ousting’ him in deference to Jeffries and what he’s done historically for [Abercrombie & Fitch]. This seems like a political way of saying let’s gradually take away power. It’s further support for the notion that Abercrombie is becoming more shareholder friendly. "

The last word on this landmark greater matter, however, should be given to Stapleton of A&F who, on a firmly positive note, surmised:

" These significant changes demonstrate the Company's ongoing commitment to being a leader in corporate governance best practices and responding to shareholder concerns. The Company will continue to review additional corporate governance enhancements as part of this commitment. "

We are in the beginning of a #NewFuture, indeed...


P.S. You can now follow the performance of the ANF stock – since its IPO to up-to-the-moment – with our interactive, immersive chart at the bottom of our site!