Dec 4, 2017
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Hedge fund Marcato shifts proxy fight tactics at UGG maker Deckers

Dec 4, 2017

Activist hedge fund Marcato Capital Management said on Monday it cut the number of nominees to Deckers Outdoor Corp’s board to three from nine, likely improving its chances of victory. The move is part of a prolonged proxy fight in which Marcato is seeking major changes at the Uggs boot maker.

Photo: Uggs, a Deckers brand

With ten days to go before shareholders cast votes in one of the season’s most bitter proxy contests, activist investor Marcato Capital Management took an unusual step by essentially mounting a new contest with a smaller slate of directors.

The San Francisco-based hedge fund, which owns 8.5 percent of Deckers, said in a regulatory filing that it was proposing three directors - after having spent months campaigning to replace all nine members of the board.

The slimmed-down slate, say analysts, could give Marcato its best shot at getting on the board. It could also prompt firms that advise shareholders on the way to vote to revisit recommendations they made last week, which were mixed in their appraisals.

“Adjusting the slate was a smart move because it gives Marcato the best opportunity to win,” said John Ferguson, senior partner at proxy solicitation firm Saratoga Proxy Consulting. “But it is also a concession because the fund wasn’t going to get anywhere near what it initially asked for.”

Marcato wants to influence strategy at Deckers, where it says the share price could more than double by 2020 if the company sells off pieces of its footwear business, buys back shares and overhauls executive compensation. Marcato’s main fund is up 24 percent this year, beating the Standard & Poor’s 500 index gains.

The three people on Marcato’s slate have considerable retail and financial experience but no direct ties to the hedge fund itself. Steve Fuller was previously marketing chief of apparel brand L.L. Bean, while Anne Waterman was a former Michael Kors executive. Kirsten Feldman is a former Morgan Stanley executive.

Hours after Marcato announced its adjusted line-up, Deckers said it had hired a search firm to find at least two independent directors by September 2018. It would consider candidates proposed by Marcato and other shareholders, it said.

Last week, advisory firm Glass Lewis recommended shareholders back management nominees, while Institutional Shareholder Services recommended making room for three dissident candidates. ISS sees room for change but found throwing out the entire board too harsh.

Institutional Shareholder Services (ISS) on Friday had recommended Deckers’ shareholders back management nominees, but suggested withholding votes for three Deckers directors to make room for three dissident candidates to join the board.

Marcato also said ISS had suggested Deckers’ stockholders to vote for Marcato nominees Fuller and Waterman.

“The company’s prolonged underperformance, retreating cost and investment discipline, and the board’s lack of urgency in the face of significant industry disruption to address these issues suggest that some degree of board change is necessary,” ISS stated on Friday.

“There has been a material change and ISS and Glass Lewis will have to issue updates,” said Bruce Goldfarb, founder of Okapi Partners, which advises on proxy contests.

Voting for three Marcato directors might give investors the best of all worlds, leading to some change but not a change in control of the board, said Brad Allen, founder of Branav, a shareholder risk management advisory firm for company boards.

In June, Marcato had threatened to replace Deckers’ board in the annual shareholder meeting to be held on Dec. 14 if the company did not find a buyer after its review of strategic alternatives.

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