CSX, Aramark Hint at Dollar Tree Campaign Path

When the dust settled on activist fund Mantle Ridge LP's two previous campaigns — targeting CSX Corp. (CSX) and Aramark (ARMK)— both companies installed new CEOs backed by the insurgent manager.

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When the dust settled on activist fund Mantle Ridge LP’s two previous campaigns — targeting CSX Corp. (CSX) and Aramark (ARMK)— both companies installed new CEOs backed by the insurgent manager.

As a result, company followers contend it is a serious possibility that the well-known insurgent fund overseen by Paul Hilal may be seeking to replace the CEO of Dollar Tree Inc. (DLTR), the latest company to face a Mantle Ridge campaign.

Mantle Ridge on Monday, Nov. 15, disclosed in a Schedule 13D that it had accumulated a 9.8% Dollar Tree stake mostly made up of options and derivatives and said it intended to talk to management, the board and others about strategies and “the composition of the executive suite and board and possibilities for changes thereto.”

According to a person familiar with the situation, Hilal is working with Richard Dreiling, who served as Dollar General Corp. (DG) CEO between 2008 and 2015.

Barclays research report on Monday noted that Dreiling was the “architect/driving force” behind Dollar General’s “successful turnaround and extraordinary performance during that time frame.”

The person added that Mantle Ridge is seeking to boost Dollar Tree’s share price and improve performance — and change the pricing strategy at both Dollar Tree stores and the 7,900 of its Family Dollar unit, which it acquired in 2015 amidst activism pressure.

Hilal’s track record suggests Mantle Ridge could nominate a slate of dissident director candidates and seek to install Dreiling as CEO. In 2017, after weeks of squabbles, CSX installed Hilal partner and railroad veteran Hunter Harrison as CEO as part of a settlement that included the installation of new directors on the railroad’s board.

In 2019, Mantle Ridge struck an agreement with Aramark to oust four directors and install six new members onto the company’s board including Hilal and John Zillmer, who was installed as CEO. Zillmer, a former Aramark employee, appears to have been hand picked by Hilal.

At Dollar Tree, the window for nominating director candidates opens on Nov. 24 for a meeting expected in June, and all of Dollar Tree’s directors are up for election. As a result, Hilal could seek to change the board and install his own chief executive nominee.

Scott Mushkin, CEO of R5 Capital LLC, a consumer-focused research and consulting firm, said Hilal might seek to bring Dreiling in as Dollar Tree’s CEO.

“I think Mantle Ridge will want to give Dreiling a significant role, such as CEO or chairman,” Mushkin said. “I think Mantle Ridge’s strategy is to do an enormous amount of homework, and they should have a deep understanding of the challenges, and they have Rick and likely other very experienced and talented retail executives helping them with their thought process.”

He added that there was “no one better to help oversee” such a transition than Dreiling, “who orchestrated Dollar General’s turnaround.”

JPMorgan analyst Matthew Boss said in a Monday note that he believes Dreiling could potentially seek to be installed as Dollar Tree’s lead independent director “closely engaged with either [current CEO] Michael Witynski or a newly appointed team of highly experienced operators” or as Dollar Tree’s CEO.

Mantle Ridge’s campaign at Dollar Tree was first reported in The Wall Street Journal on Friday.

The person familiar with the situation noted the activist may be seeking to push Chesapeake,Va.-based Dollar Tree to execute a multi-price strategy so it could perform like a Canadian rival, Dollarama Inc., that uses the approach and has seen its share price grow about 85% over the past five years.

Mushkin also said Dreiling likely would seek to execute a wide-ranging, clearly explained multi-point price strategy for Dollar Tree, which has been rolling out a multi-price point approach but still sells products mostly for a dollar.

Dollar Tree should look to emulate multi-price point strategies employed by Five Below Inc. (FIVE) and Dollarama, Mushkin added. “If executed correctly they are likely to have great success, but if executed poorly, something our research says is happening now, it could create real problems.”

Dreiling and Hilal work together already. According to relationship mapping service BoardEx, a sister company to The Deal, the duo have been on Aramark’s board for the past two years.

According to the person familiar with the situation, Mantle Ridge raised more than $1.8 billion of capital locked up for five years in a special purpose vehicle. The value of the firm’s total 9.8% stake, including the SPV capital, at the close of trading on Monday was about $2.75 billion, the source said.

Mantle Ridge set up similarly long lockups for investments in its previous campaigns at CSX and Aramark. The structure is unusual but one that governance experts contend could help the insurgent fund get the backing of long-term institutional investors, which otherwise might be concerned that Mantle Ridge could execute a short-term strategy at Dollar Tree.

A spokesman for Mantle Ridge declined to comment.

Another activist, Starboard Value LP, in 2019 sought to drive Dollar Tree to divest Family Dollar but was unsuccessful. The Jeff Smith-led fund canceled its campaign after the retailer said it intended to perform a significant test of multiple price points at its stores.

This article originally was posted on The Deal on November 16, 2021 by Ron Orol. View the original article here.

Follow Ronald Orol on Twitter and LinkedIn.

About the author

Ronald Orol
Senior Editor at | + posts

Ronald Orol leads coverage of activist hedge fund managers, a high-profile group of corporate investors who press for blockbuster deals and were the subject of his book “Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World.” Ron produces the Activist Daily and Activist Weekly briefings, which offer exclusives, trend pieces and breaking analysis about insurgent investors and their M&A efforts. Ron also authored “Corporate Governance in the Era of Activism,” a digital handbook for CNBC’s Jim Cramer. He previously worked as a financial regulation and activism reporter at MarketWatch and Dow Jones Newswires.

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