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Activist Investor Turns Up Heat on Deckers

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  • File photo courtesy of Deckers Brands

Activist investor Marcato Capital Management continues to turn up the heat on Deckers Brands Inc., the parent company of Ugg, Sanuk and Teva.

Marcato, which owns 6.1% of the company’s shares, has been pressing Deckers to improve shareholder value, including a potential sale of the company.

Wednesday, Marcato announced that it is nominating a slate of 10 candidates for the company’s board of directors, including former executives at L.L. Bean, Toys ‘R’ Us, Ralph Lauren, Justice, and Michael Kors.

Marcato believes years of mismanagement at Deckers has led to the company’s underperformance.

“…A review of Deckers’ operating history underscores that this underperformance is not the result of one-off events beyond the company’s control, but instead is attributable to years of strategic, operational, and capital allocation missteps,” Marcato said in an SEC filing today.

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“We believe that the Board bears ultimate responsibility for this long-running neglect for shareholder value. While we recognize the company is exploring a sale, should this process fail to achieve an attractive outcome for shareholders, we believe significant board change is necessary.

“Accordingly, we are nominating a group of highly qualified directors who we believe will bring the fresh perspectives and direct experience needed to establish a strategic plan that creates long-term value for shareholders,” Marcato said.

Deckers is in the midst of  “reviewing strategic alternatives,” which means it is exploring a possible sale of some or all of its brands.

The company has also launched a plan to improve profitability by cutting costs by $150 million from a combination of SG&A and cost of goods improvements, and believes those changes can lead to a $100 million upgrade in operating profit by 2020. Deckers has already seen some benefits from these efforts.

The company responded to Marcato’s nomination of board candidates with the following statement:

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“Deckers welcomes open communications with its stockholders and values constructive input toward the shared goal of enhancing stockholder value,” the company said.

“Although we engage regularly with our stockholders, it is Deckers’ policy not to comment on discussions with individual stockholders. However, it is important to note that members of the board and senior management team have held a number of discussions with Marcato during the past eight months and those discussions remain ongoing.

“Deckers has a strong and independent board, with three new directors who have joined since 2014. The board believes that it has an appropriate mix of skills, experience and leadership to drive performance and provide effective oversight. At the same time, the board will give full and fair consideration to the nominees proposed by Marcato.

“As previously announced on April 25, 2017, the board is reviewing a broad range of strategic alternatives to enhance stockholder value. The board has retained Moelis & Company LLC as its financial advisor and Wilson Sonsini Goodrich & Rosati, Professional Corporation as its legal counsel in connection with the review process. While the board conducts its review, the entire Deckers team remains committed to improving operations and profitability.

“As previously announced, Deckers is executing on a focused strategy to drive improvements in the business through streamlining its cost structure.

“Deckers continues to aggressively move forward with its $100 million operating profit improvement plan: in fiscal year 2018, Deckers expects to achieve net savings in excess of $30 million, and is targeting a similar cadence of savings each year through fiscal year 2020. To achieve this, Deckers is taking a number of actions to improve its gross profit margins, as well as its corporate overhead expense structure,” Deckers said.

The board of directors vote will be settled at the company’s annual shareholder meeting on Dec. 14.

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