Third Point’s Dan Loeb pens a pointed letter to Bath & Body Works – What could happen next

Business: Bath & Body Works operates a specialty retailer of location fragrance, assemblage care, soaps and sanitizer products. In August 2021, Bath & Body Works (formerly known arsenic L Brands) completed the separation of its Victoria's Secret business. 

Stock Market Value: $9.68B ($42.42 per share)

Percentage Ownership:  6.02%

Average Cost: $38.16

Activist Commentary: Third Point is simply a multi-strategy hedge money founded by Dan Loeb. The money selectively takes activistic positions. Loeb is 1 of the existent pioneers successful the tract of shareholder activism and 1 of a fistful of activists who shaped what has go modern-day shareholder activism. He popularized the poison-pen missive astatine a clip erstwhile the measurement was often necessary. As times person changed, helium has transitioned from the poison pen to the powerfulness of the argument. Third Point has amicably obtained committee practice astatine companies similar Baxter and Disney, but besides volition not hesitate to motorboat a proxy combat if the steadfast is being ignored. 

Last May, BBWI's CEO Andrew Meslow stepped down from his position, citing health reasons. The board, chaired by Sarah Nash, named her arsenic interim CEO. In its announcement, the institution stated that Nash presently served arsenic the CEO of privately held Novagard Solutions, a institution that manufactures silicone coatings and sealants. As portion of this appointment, BBWI agreed to summation Nash's yearly compensation arsenic seat of the institution to $1,000,000 from $700,000 during the clip she served arsenic interim CEO. Additionally, the institution agreed to wage her an yearly basal wage of $1,350,000 and a short-term show inducement compensation people of 190% of her basal wage for her enactment arsenic interim CEO. The concern became egregious erstwhile the board, successful addition, awarded her $18 cardinal of restricted banal units connected March 11, 2022. She would person this $18 cardinal careless of however agelong she served arsenic interim CEO. Ultimately, she served arsenic interim CEO for a afloat 7 months for the $18 million.

Would this person happened if an activistic were connected the board? We don't deliberation so. As an example, successful April 2019, ABB president Peter Voser stepped successful arsenic interim CEO of ABB. He did not person immoderate summation to his compensation arsenic president and helium received the aforesaid wage and short-term incentives arsenic the anterior CEO and nary further semipermanent inducement grants oregon benefits, but those legally required. He served arsenic interim CEO for 11 months and received full compensation of $4.2 million, which was $3.3 cardinal little than the anterior CEO and $1.7 cardinal little than the imperishable CEO succeeding him. ABB was a $50 cardinal institution astatine the time. BBWI is simply a astir $10 cardinal company. Further, Voser did not person different full-time occupation backmost then. For the $4.2 million, helium agreed to give his afloat attraction to ABB. One different happening – Lars Förberg, co-founder and managing spouse of activistic money Cevian Capital was connected the committee of ABB astatine the time.

Third Point besides takes contented with the information that the BBWI committee does not designate Nash arsenic an enforcement seat adjacent though she is receiving $18 cardinal successful banal grants vesting implicit the adjacent 3 years. Third Point believes that $6 cardinal of compensation per twelvemonth renders a manager non-independent. We would thin to hold with that. Let's look astatine different example. Richard Dreiling is designated arsenic the enforcement seat of Dollar Tree due to the fact that helium is paid a wage of $1 cardinal per twelvemonth and has banal options to get 2.25 cardinal shares of banal astatine the company's all-time highest closing price, vesting implicit 5 years. Before negotiating that deal, the committee reached retired to shareholders owning much than 50% of their stock. The ascendant taxable from that outreach was that the institution should bash immoderate was indispensable to unafraid Dreiling's services arsenic the company's apical enforcement for a multi-year period. This is conscionable bully firm governance. Having antecedently grown Dollar General from a $4.5 cardinal institution to a $25 cardinal institution successful 7 years arsenic its CEO, Dreiling was imminently qualified for this position. He besides did not person different full-time position, and Dollar Tree is simply a $30 cardinal company. Finally, Paul Hilal, laminitis and CEO of activistic capitalist Mantle Ridge was connected the board, brought connected Dreiling and led the committee successful structuring and negotiating this full arrangement.

In contrast, the BBWI committee did not look to scope retired to shareholders, did not person an activistic oregon immoderate shareholder typical connected the committee and seemed to participate an "arms-length" dialog betwixt Nash and the committee she leads. That is however you scope an $18 cardinal outgo for 7 months of enactment portion holding connected to your full-time job. So, Third Point is present going to marque a books-and-records petition nether Delaware instrumentality to measure the accusation the committee relied connected to warrant this payout. My conjecture is that the enactment for this determination volition beryllium underwhelming.

The Nash-led BBWI committee is present doing immoderate it tin to support itself from having a shareholder typical connected the board. And erstwhile I say, "whatever it can," I mean the precise slightest the committee thinks it has to bash to win. We often spot this successful activistic campaigns astatine companies with inexperienced and/or entrenched boards. In this case, the committee is "refreshing" its rank by adding 2 caller directors to the 12-person board. This allows the committee to proceed with concern arsenic usual, portion astatine the aforesaid clip enabling it to spell earlier Institutional Shareholder Services and reason that determination is nary request for a Third Point typical connected the committee due to the fact that it has been refreshed. However, erstwhile a committee has egregious firm governance practices, its members are the past radical you privation to name caller directors. A committee similar this volition request a batch much refreshment than conscionable 2 further directors.

The institution whitethorn besides reason that it received an support ballot of implicit 95% connected its astir caller say-on-pay connection successful 2022. This ballot was wholly focused connected 2021 wage and did not see Sarah Nash arsenic a named enforcement officer. Furthermore, ISS recommended voting "for" connected accidental connected pay, but besides said that the $18 cardinal Nash grant and her wide compensation arsenic interim CEO volition beryllium analyzed adjacent year.

Third Point's Loeb popularized the poison-pen missive astatine a clip erstwhile it was needed. As times person changed, helium has transitioned from the poison pen to the powerfulness of the argument. Third Point's missive to BBWI is grounds of that. Third Point has amicably obtained committee practice astatine companies similar Baxter and Disney, but the steadfast volition not hesitate to motorboat a proxy combat if it isn't being heeded. Often the quality betwixt amicable activism and confrontational activism is the effect of the company. It is up to the institution arsenic to however adversarial this engagement gets. It is often hard successful activistic campaigns to place who is wearing the achromatic chapeau and who is wearing the achromatic hat. In this situation, it seems obvious. Large organization shareholders and ISS volition not condone egregious firm governance. If this goes the distance, we judge Third Point volition amusement the BBWI committee however almighty a bully statement is.

Ken Squire is the laminitis and president of 13D Monitor, an organization probe work connected shareholder activism, and the laminitis and portfolio manager of the 13D Activist Fund, a communal money that invests successful a portfolio of activistic 13D investments.