A shopper browses inside a Bath & Body Works store in Las Vegas, Nevada, US, on Sunday, November 7, 2021.
Bridget Bennett | Bloomberg | Getty Images
Company: Bath & Body Works (BBWI)
occupation: bath and body work Home Fragrances is an exclusive retailer of body care, soaps and sanitizer products. In August 2021, Bath & Body Works (formerly known as L Brands) completed the separation of its Victoria’s Secret business.
Stock Market Value: $9.2B ($40.31 per share)
worker: third point
Percentage Ownership: 6.02%
Average price: $38.16
Activist Commentary: Third Point is a multistrategy hedge fund founded by Dan Loeb that selectively takes activist positions. Loeb is one of the true pioneers in the field of shareholder activism and certainly one of a handful of activists who have shaped what has become modern day shareholder activism. He invented the poison pen letter at a time when the poison pen was often necessary, and as times have changed, he has transitioned from the poison pen to the power of reasoning. Third Point has amicably gained board representation in companies such as BAXTER And disney, But if they are being ignored, they will not hesitate to start a proxy fight.
What is happening?
behind the scenes
BBWI is a solid company and brand with a long history of strong performance and years of experience of delivering 20%+ operating margins. During the Covid pandemic, the company got customers and did well, but this year the tables have turned. The company has been in a leadership transition phase, facing a difficult macroeconomic environment and made a series of execution missteps.
On May 12, Andrew Meslow resigns as CEO and board chair Sarah Nash was appointed as the interim CEO. On August 15, Chris Cramer resigned from the COO role and the company announced that it would not be filling the position.
Nash was given an astronomical compensation of $18 million to serve as interim CEO, despite being paid $700,000 annually to serve as chair. The president’s salary was raised 15% to $1 million and the company signed retention agreements with the president, CFO and head of human resources, where they were paid an additional $4.2 million in equity. This is what Third Point was talking about in its 13D filing when it said it is concerned about executive compensation and excessive rewards.
To put this in context, one of BBWI’s larger partners, upside down beautyPays its CEO $8.5 million and its highest paid non-employee director $300,312.
On top of the leadership issues, the company bought back $1.3 billion of stock at about $49 per share before making several cuts to earnings guidance, which then sent the stock down to $30 per share. And through it all, the company could have communicated better to the market, since it also doesn’t have an internal investor relations executive, which is unusual for a company of this size — especially one whose share price is struggling.
On a positive note, Gina Boswell took over as the new CEO on December 1, following an extensive search to find a qualified executive.
However, the missteps since the company divested Victoria’s Secret on August 3, 2021, have clearly indicated that management needs better consultation from the board and members with experience in capital allocation, executive compensation, market communications; Which will hold the management accountable. I’m not sure I’ve seen a board that needs more shareholder representation than this. The good news is that this is a great company with a strong brand that will generate shareholder value under the right leadership.
3rd Point isn’t here to make drastic changes and they certainly aren’t targeting a new CEO who appears to be qualified for the position. Instead, they are looking for board refreshment to support the new CEO and put him in the best position to succeed.
The only downside to Boswell is that she’s never been a CEO of a public company before. That’s fine, it just means that having a strong board to advise and support him is even more important. This means a board that can guide capital allocation decisions, such as buying back shares at considerate prices; Has experience with investors and communication with the market; and will be diligent about paying management fairly but not excessively. Not much change needed here, just continuing to refresh the board with executives from experienced retail and personal care and directors with financial expertise.
At this juncture, we would expect Third Point to seek board representation, support the new CEO and encourage the hiring of an IR person. We would love to see an Industry Director and a Third Point individual join the Board, but we will not consider it a failure if Third Point decides not to take a Board seat in honor of other qualified new Directors.
The third point is known by many for the activism of confrontation and poison pen letters, but that is the third point of 15 years ago. The third point of modern times succeeds in its activism through the power of reason and respect. So, we would hope that it ends amicably. Although, Third point can still fight a proxy if necessary And they are as good as they are at it. If pushed over the edge, we don’t expect them to cave. The director nomination window opens on February 11, 2023, so we have a few months to see how it works out.
Ken Squires is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and he is the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. Square is also the creator of the AESG™ investment portfolio, an active investment style focused on improving the ESG practices of portfolio companies.