A Friday Boardroom Battle at UGG-Maker Deckers?
With activists hovering, a director-election fight appears imminent at Deckers Outdoor Corp., as the deadline for shareholders to nominate directors December annual meeting is set for Friday.
By Ronald Orol
With activists hovering, a boardroom battle appears imminent at Deckers Outdoor Corp. (DECK) as the deadline for shareholders to nominate directors at the UGG-boots maker's December annual meeting is set for Friday.
In June, activist investor Mick McGuire said he would launch a director contest to replace Deckers entire board if an ongoing strategic review process didn't culminate in a sale of the whole company at a fair price. Nevertheless, no sale appears forthcoming, which suggests that either a boardroom battle or settlement installing dissident directors is imminent.
There is a chance the company could postpone its nomination deadline and annual meeting currently set for Dec. 14, to buy itself more time for its review. However, with a specific meeting date set that seems unlikely. In addition, Deckers could announce a deal.
However, Sam Poser, an analyst at Susquehanna Financial Group, said a sale of Deckers does not appear to be materializing in a timely manner, adding that he thinks that as a result it is likely that Marcato will launch a director-election battle. "We continue to believe that a takeout by a strategic buyer at current price levels or higher is unlikely," Poser said. "Accordingly, the chances that Marcato may have to pursue a proxy contest is on the rise."
A key issue is the state of the UGG brand, which isn't as healthy as it once was. In June, Poser said in a report that he spoke with potential strategic buyers who have told him that they wonder why anyone would pay for a UGG brand that has annual revenue of about $1.5 billion when the company would be a more efficient brand at $1 billion in annual revenues. Poser noted that Deckers had an EBIT margin in fiscal 2017 of about 9.25%, significantly down from its 2014 EBIT margin of 12.9%.
Nevertheless, Poser said he values Deckers, based on a some-of-the-parts analysis, at $62 a share, with a $52 a share to $71 a share range for high and low scenarios. Poser added that if nothing comes of the strategic review, he expects the stock to revert to about $42 a share. It currently trades at $63.83 a share.
Since all directors are elected annually it is very possible that McGuire and his insurgent fund Marcato Capital Management LLC, could seek to take control of the board as he said he may. If McGuire succeeds it is very likely that he will try to shake up the company's management team, which is headed by CEO Dave Powers.
And in what appears to be an effort to appease a restless shareholder base that might be thinking of backing McGuire, Deckers made a change to its board last month. Angel Martinez, the ex-CEO and most recently Deckers chairman resigned from his chairman position, though he remains on as a director. Marcato Capital's McGuire had made known his displeasure about Martinez' political ambitions and had criticized his run for mayor of Santa Barbara, Calif. as a distraction from his Deckers duties.
In addition, another activist, Red Mountain Capital Partners LLC, also owns an interest in the company of about 3%.
Expect McGuire to have some measure of success installing directors, as he did recently with a successful boardroom battle at Buffalo Wild Wings (BWLD). However, it is unclear whether his ultimate goal of driving the footwear company to sell itself will succeed.
"Do I think he gets people on the board," said one analyst. "Most likely he will."
An adviser to Marcato did not return a request for comment.
