Photographer: Mark Leong/Redux

Ethan Allen Activist Sandell Management Begins Proxy Fight

  • Sandell owns about 5.5 percent of the furnishing retailer
  • Hedge fund nominates Ken Pilot, Edward Glickman to board

Ethan Allen Interiors Inc., the furnishing retailer being targeted by activist hedge fund Sandell Asset Management Corp., faces a proxy fight for six of its eight board seats at its upcoming annual meeting.

Sandell, which owns about 5.5 percent of Ethan Allen, said in a statement Tuesday that it nominated six directors, including former ABC Carpet & Home President Ken Pilot and former Pennsylvania Real Estate Investment Trust President Edward Glickman, seeking control of the company’s “stale and entrenched board.”

The activist criticized Ethan Allen for “anemic” revenue growth during the past five years, noting that the retailer has lagged its peers in shareholder returns over the past decade. Ethan Allen also has lost market share to competitors such as Restoration Hardware Holdings Inc., Bassett Furniture Industries Inc. and Williams-Sonoma Inc., Sandell said. Internet sales, meanwhile, account for just 2 percent to 5 percent of Ethan Allen’s revenue, the investment firm said.

Sandell revealed Ethan Allen as a target company on July 15, when the activist firm’s founder Tom Sandell said the company could be worth $40 a share if it spun its properties into a real estate investment trust, or fetch $37 a share if acquired by a private-equity firm. The shares have risen 1.4 percent since then, closing Monday at $30.66, giving the company a market value of $871 million.

Real Estate

The activist reiterated calls on Tuesday to sell real estate, including a hotel owned by the company, and for changes to its capital structure. The firm described Ethan Allen’s Chairman, Chief Executive Officer and President Farooq Kathwari as “the prototypical Imperial CEO,” who at 71 still lacks a known succession plan.

Kathwari in August rejected Sandell’s calls to sell real estate and defended the company’s “strong” returns and financial position.

Sandell on Tuesday detailed criticisms of Ethan Allen’s corporate governance, including an “archaic” dead hand provision adopted when the company was taken public again in 1993 following a management-led buyout. That provision prevents directors other than the three there in 1993 or chosen by them, to vote on any transactions suggested by a shareholder with more than 5 percent of the stock.

Board Candidates

Other nominees by Sandell seeking votes at the Nov. 24 meeting are former Albertson’s Inc. executive Kathy Herbert, Moody’s Investors Service’s Annelise Osborne, former Cerberus Capital Management Partner Alex Wolf, and Sandell Managing Director Richard Mansouri.

Founded in 1998, Sandell recently won four board seats in a proxy contest at Bob Evans Farms Inc. The activist’s recent campaigns include Viavi Solutions Inc. and Brookdale Senior Living Inc. Sandell is threatening a proxy fight at Viavi, the network-testing equipment seller formerly known as JDS Uniphase Corp., and recently struck a settlement at Brookdale for two board seats after nominating three directors.

Activist investors acquire equity stakes in publicly traded companies and agitate executives and directors to make changes they believe will boost shareholder returns.

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