Dollar Tree Inc. (DLTR) on Sunday, Dec. 12, pushed back on a change-of-control director contest launched by Paul Hilal’s Mantle Ridge LP, arguing that the discount retailer offered to explore a settlement even though it believed the activist “offered no new ideas.”
The Dollar Tree comments emerged after Mantle Ridge on Friday reported in a 13D filing that it launched a change of control director contest seeking to replace Dollar Tree’s entire board with 11 dissident director candidates as part of an effort to push the discount retailer into putting the fund’s partner, ex-Dollar General Corp. (DG) CEO Richard Dreiling, in a “leadership role.”
Dreiling, Dollar General CEO between 2008 and 2015, is considered by analysts as a key driving force behind a successful turnaround of the Dollar Tree rival.
In its Sunday release, Dollar Tree included a Dec. 7 letter it sent to Mantle Ridge noting that it was willing to explore a settlement in which Dreiling would get a directorship “and potentially be engaged as a meaningful consultant.” As part of its offer, Mantle Ridge would have a role in the company’s “ongoing board refreshment program.”
However, instead, Mantle Ridge is seeking more control and perhaps a more senior role for Dreiling. Mantle Ridge reported it owned a 9.8% stake, made up of 5.7% common shares and 4% derivatives, unchanged from its original 13D filing in November.
A contest wouldn’t take place until June at the Virginia-incorporated company.
Dollar Tree’s board has undergone some refreshment in recent years — six of its nine independent directors have been on the board for less than six years, though three others, Arnold Barron, 74, Lemuel Lewis, 75, and Thomas Whiddon, 69, have held positions for between 14 and 18 years.
Some of Mantle Ridge’s candidates are connected to the fund’s previous campaigns and others have retail experience. Dissident candidate Susan M. Cameron, an ex-CEO of Reynolds American Inc., was installed onto Aramark Corp.’s (ARMK) board as part of a 2019 settlement with the activist fund.
Three candidates were incumbent directors at companies that were later targeted by Mantle Ridge. Nominee Daniel J. Heinrich was a director at Aramark prior to Hilal’s involvement while Edward J. Kelly and Steven T. Halverson both were incumbent directors at CSX Corp. (CSX) before the activist fund launched its effort there. Mantle Ridge succeeded at shaking up boards and C-Suites at both Aramark and CSX.
Nominee John Flanigan held senior executive positions at Dollar General between 2008 and 2016, according to relationship mapping service BoardEx. Candidate Frederick Crawford worked previously at consultant AlixPartners LLP while Bertram L. Scott is a Lowe’s Cos. Inc. (LOW) director.
It is unclear why Dreiling is not on Mantle Ridge’s slate. It may be that Mantle Ridge believes that Dreiling would need the support of a full Dollar Tree board to make what it considers to be necessary changes.
It is also unclear what Mantle Ridge and Dreiling are seeking exactly at Dollar Tree. A person familiar with the situation suggested that the fund wants to change the pricing strategy at Dollar Tree and its 7,900 Family Dollar stores.
However, Oppenheimer analyst Rupesh Parikh on Dec. 12 noted that Dollar Tree management has already been aggressively moving towards a multi price point strategy, adding that “execution in this area remains the key to drive shareholder value over time.”
In his note, Parikh said it was unclear what Mantle Ridge specifically is seeking to accomplish, adding that the retailer seems to be “moving the company in the right direction in offsetting significant cost pressures and driving topline growth at the Dollar Tree banner.”
However, two other research firm didn’t seem to be overly concerned about a lack of detail around Mantle Ridge’s campaign. In a Dec. 13 note, Wells Fargo analysts suggested that a director shakeup and the installation of Dreiling in a leadership role would be “large wins for shareholders.”
It added that the ideal solution would be for a quick settlement that would allow Dreiling to help the company sooner in a leadership capacity. The analysts said that they didn’t believe a settlement was “off the table” at this stage.
On Dec. 13 Bernstein Research opined that if Mantle Ridge wants to stay in the fight they will “very likely win based on our broad discussions with shareholders who describe exasperation with the management team and extremely limited investor outreach.”
BMO Capital Markets Analysts in a Nov. 23 note raised its Dollar Tree target price to $155 a share, adding that its strategic change to convert its Dollar Tree price point to $1.25, from $1, “adds flexibility” and contributed to a “higher valuation.”