Wet Seal Board Fights Back in Proxy Battle
The brewing proxy battle at The Wet Seal Inc. heated up Sept. 25 when the Foothill Ranch, Calif.–based retailer released a letter to its shareholders begging them to reject the call of a New York–based financial group to vote out all but one of Wet Seal’s five-member board.
The fight formally started on Sept. 10, when the Clinton Group hedge fund, which owns 7 percent of Wet Seal stock, filed papers with the Securities and Exchange Commission. The papers solicited shareholders to throw out the current board and vote in a new slate of candidates that Clinton Group said would raise Wet Seal’s performance.
The filing accused the Wet Seal board of mismanagement, resulting in the decline of a solid company. In August, the retailer posted net sales of $48.8 million and a same-store-sales decline of 18.3 percent compared with the previous year.
Since the proxy fight began, Wet Seal added two executives to its board in an effort to repel the proxy battle. One new director is Kathy Bronstein, former Wet Seal president and chief executive who led the company from 1993 to 2008. When she joined Wet Seal, it was a 14-store regional chain. When she left, Wet Seal was a national retailer with 686 stores. Wet Seal currently runs a fleet of 559 stores. The other new director was John Goodman, who served as chief executive of retailer Charlotte Russe from 2008 to 2009.
In the Sept. 25 letter to shareholders, Wet Seal’s current board argued that Clinton Group did not have the best interests of the retailer in mind. “Clinton Group’s actions in recent months have demonstrated that they only care about their interests, and their focus is on short-term and short-sighted gain.”
On Sept. 26, two independent proxy advisors, Institutional Shareholder Services (ISS) and Egan-Jones Proxy Services, recommended against the Clinton Group offer.Both ISS and Egan-Jones said Wet Seal’s recent changes have been an attempt to respond to shareholders’ concerns. In particular, ISS called the appointment of Bronstein and Goodman “strong additions to the board” and said they are “capable of helping drive the company back to profitability.”ISS also recommended the retailer replace two independent board-of-directors members with two new directors from the Clinton Group, but the board disagreed.
“The Wet Seal board and management strongly believe that the best course for shareholders is for the full seven-person board, including its two new strong directors with teen retailing experience, to work constructively and prudently over the next few months to complete the plan to transition back to our fast-fashion strategy,” said Hal Kahn, chairman of the board of The Wet Seal, in a statement.“The critical holiday season is two months away, and we remain committed to restoring stability and building real and lasting value while we explore alternatives with our financial advisors for enhanced opportunities.”
The current board also noted that it will move up the date of Wet Seal’s annual shareholders’ meeting. It will be held no later than April 19, 2013, the board said.
—Andrew Asch
