Investor Group Steps Up Bed Bath & Beyond Proxy Fight

A group of activist investors, Legion Partners Holdings, Macellum Advisors and Ancora Advisors, have stepped up their efforts to make changes at Bed Bath & Beyond, issuing a new statement regarding what it said are recent “misleading claims and shareholder-unfriendly actions from Bed Bath & Beyond.”

“Our desire is for this proxy contest to be fully about the merits and the facts. That is why we have focused on Bed Bath’s share price underperformance, its lack of a viable strategic plan, its alarming corporate governance issues, and our recently-released plan detailing how we believe our nominees can realize the significant potential of the company. In short, the real issues that matter to shareholders,” the activist group stated. “Unfortunately, the company has chosen to engage in a campaign of misinformation and deception in an attempt to distract shareholders. Bed Bath has issued what are in our view misleading statements, put up shareholder-unfriendly obstacles to a fair proxy contest, and has made changes to the board of directors that are simply too little, too late.”

The investor group further went on to state:

“Bed Bath’s directors are seemingly attempting to mislead investors and create obstacles to prevent shareholders from participating in a fair process to elect the best directors for the company. We believe this represents an effort to protect CEO Steven Temares and protect the status quo.

“The company claims that the investor group did not meaningfully engage in settlement conversations. This is patently false. At the urging of the company, the Investor Group actually signed a non-disclosure agreement the morning of Easter Sunday (April 21st). After receiving a settlement proposal, the investor group was prepared to discuss the proposal on Monday, April 22nd and communicated this to the company and its advisors. Before the group could respond to the proposal, the company rushed to release its new director appointments within 24 hours of signing the non-disclosure agreement. The company likely understood its proposal was not compelling and rather than actually engage in a good faith negotiation, it quickly cut ties with seven long-tenured legacy directors and added five new directors, many of whom may only recently have been identified. Further, since the company just entered into a non-disclosure agreement with the investor group, it was fully aware the agreement stipulated the group was not allowed to disclose the agreement’s existence for several days. We believe shareholders will see this disingenuous tactic as an act of bad faith and an attempt to mislead shareholders.

“On two occasions, the board declined to agree to the use a universal proxy card— despite previously trying to create an unlevel playing field by demanding the investor group’s nominees give their consent to be named on the company’s proxy card but not offering that its nominees be similarly named on the investor group’s proxy card. While the company has finally agreed to level the playing field and not to name any of the investor group’s nominees on its proxy card, the investor group has sought to encourage the use of a universal proxy card as best governance practices, particularly following the recent board changes.

“The board is not taking necessary action to avoid triggering potential adverse financial consequences under Bed Bath’s $1.5B notes. The company has refused to approve of our director nominees in a timely manner for the sole purpose of avoiding triggering certain change in control provisions that could accelerate the Notes if a rating event follows the change in control. A change in a majority of the board without the incumbent board’s approval of our nominees would constitute a change in control.  We believe the board can prevent this adverse consequence by approving in advance the investor group’s nominees.  Such approval is not an endorsement or recommendation, so, in our view, the incumbent board has no good reason to refuse to grant it. By failing to approve of the investor group’s nominees and keeping the threat of such consequences out there, we believe the board is seeking to taint the corporate electoral process.

“The company has not set a date for the 2019 Annual Meeting of Shareholders. The company has typically held its annual meeting in late June or early July.  If it intended to be consistent with prior years, the company should have filed preliminary proxy materials by now.  We hope that the company is not seeking to delay the 2019 Annual Meeting to buy time to develop a plan that is half baked and reactive when faced with a contested election.

“We believe shareholders cannot accept that the legacy directors who have overseen the company’s disastrous performance can be trusted to select new candidates with appropriate backgrounds and objectivity to evaluate the company’s strategy. Similarly, shareholders should not feel comfortable giving control of the board to a new group of directors to implement the same strategic initiatives that have shown little improvement to the business. We believe this degree of change is implicit acknowledgement of how disastrously the legacy board has dispatched its fiduciary duty. Shareholders should not allow a transfer of control to new directors selected by the legacy directors who have overseen over $8 billion of value destruction over the past 15 years.

“The newly reconstituted board does not appear to have the requisite skills necessary to turn Bed Bath around. The new board does not possess a former or current retail CEO. In contrast, the investor group nominees include seven former or current retail CEOs. The directors on the newly constituted board, over their collective careers, have served on the board of only one other publicly traded retailer. Our nominees have served on 20.

“The composition of the new board will perpetuate the status quo. Steve Temares remains the CEO. Leonard Feinstein and Warren Eisenberg will continue to be paid for attending meetings and will remain in the boardroom voicing their perspectives and attempting to influence the company’s direction. Newly appointed chairman, Patrick Gaston, is a 12-year veteran Bed Bath director. He has overseen substantial destruction of value while serving on the audit committee, the nominating and governance committee and the compensation committee. The newly reconstituted nominating and governance committee is comprised of three of the four remaining legacy directors. This committee, which has no retail experience, will have disproportionate influence over the future fate of Temares.

“CEO Temares’ statements regarding operational improvements are concerning. We are mystified that as part of the company’s response our strategic plan, Bed Bath claims that the company’s turnaround plan is “well underway and delivering results” as well as parts of its transformation plan are “substantially completed.” Not only is there little to no evidence that any positive change is occurring, we are concerned that the rate of deterioration, based on Q1 guidance, is accelerating. If these results are what the company views as “substantially completed,” then shareholders should be substantially outraged. We believe wholesale change is imperative. Half measures will not do and the newly constituted board, which appears designed to keep Temares in place, risks further deteriorating results and destruction of shareholder value.

“Shareholders’ voices must be heard before any further changes are made. The investor group calls on Temares to stop making what appears to be reactive and untested operational and strategic changes to the business, particularly as it relates to the company’s promotional stance. It is our belief that as the company attempts to improve margins by reducing couponing it’s actually losing customers and driving gross margin dollars lower. We see no evidence that the company is “trading sales for margin” as Temares claimed on the last investor conference call. We do not believe shareholders are in favor of this initiative and Temares should stop making operational and strategic changes that appear to be further destroying value until shareholders have voted at the 2019 Annual Meeting.

“We look forward to continuing to make our case for change to Bed Bath’s shareholders in the coming weeks.”

Update: In response to the investor group’s statement, Bed Bath & Beyond stated: “The activist group’s press release earlier today again includes many untrue statements and important omissions, including regarding our attempts to reach a settlement. The newly refreshed Bed Bath & Beyond board of directors has deep knowledge in our business and is best positioned to return value to shareholders for the near and long term. Yesterday, five outstanding new board members with significant expertise in the fields of global retail, merchandising, technology, logistics, finance and governance joined the board, and the entire board, along with the management team, are working hard to ensure the continued transformation of our business. We continue to invite the activist group to contribute constructively. Meanwhile, we will focus on doing excellent work and delivering results for our shareholders and customers.”