Shareholders on Tuesday, Aug. 17, approved a nonbinding shareholder proposal issued by an activist investor urging auto service and tire centers company Monro Inc. (MNRO) to recapitalize its shares so that both classes of stock have one vote per share.
At issue is a proposal submitted by Dianne McKeever’s Ides Capital Management LP targeting the Rochester, N.Y.-based company’s Class C preferred structure that gives one board member, 82-year-old investment banker Peter J. Solomon, control of the shareholder vote even though Monro’s Class C preferred shares make up only 2% of the total share count.
Solomon is the founder of boutique financial advisory firm PJ Solomon LP, which focuses on providing advice on M&A, restructurings, recapitalizations and activism defense.
Ides, which called the structure a “corporate golden share,” said common shareholders deserved a guaranteed voice in Monro’s governance and that they were not satisfied with the current structure. Monro, which has been publicly traded since 1991, has two classes of stock.
The company did not issue a response to the proposal, an unusual course that suggests there may be some support for the change at the board level. Nevertheless, it is unclear whether the company is for or against it or whether it will implement the measure now that a majority of voting investors backed it.
According to a person familiar with the situation, Monro has received inbound expressions of interest from private equity firms over the past 12 months that could be interested in acquiring the automotive services company, but they have been rebuffed.
Monro did not return calls for comment.
Ides said “only one share of the Class C preferred need exist for its owners to retain and exercise an exclusive veto power.” The fund said companies with dual-class structures underperform over the long term, and “Monro is no exception.”
McKeever told The Deal she isn’t a fan of dual-class share structures. “It is an ownership structure that has proven itself to be destructive to long-term shareholder value, not only broadly but also specifically at Monro,” she said. “This is a company with long-suffering stakeholders — employees, customers and shareholders — and we believe this ownership structure is at the root of those problems.”
She added that some well known institutional investors “won’t touch” Monro because of the dual-class structure.
The fund noted in its proposal that governance experts agree that if dual-class structures should exist that they should have limits, such as a a seven-year phase-out following an IPO. The fund added, however, that Monro’s IPO took place roughly 30 years ago, well past “suggested time limits.”
According to relationship mapping service BoardEx, a sister company to The Deal, Solomon has been an independent director on Monro’s board for 37 years.
Monro also has other long-tenured independent directors including Frederick Danziger, Donald Glickman and Robert Mellor, who have served 37, 37 and 16 years, respectively. Mellor is Monro’s independent chairman.
McKeever said she sent numerous letters and spent “significant time” urging Monro to improve both its operational execution and its ESG and policies, focusing on boardroom diversity, employees and sustainability reporting in line with a framework set up by nonprofit standards setter Sustainability Accounting Standards Board.
McKeever said she was pleased that Monro this year released a sustainability report and that it recently added its first Black director, Leah Johnson, chief communications and marketing officer of the Lincoln Center for Performing Arts.
Glass Lewis in its report issued July 29 said that since Solomon owns 100% of Class C shares, he shouldn’t be considered independent. The adviser also defended its support for collapsing the dual-class structure, arguing “the economic stake of each shareholder should match their voting power and that no small group of shareholders, family or otherwise, should have voting rights different from those of other shareholders.”