Wet Seal Board Resigns, Proxy Fight Over
Prominent juniors retailer TheWet Seal Inc. announced Oct.5 that four members of its embattled incumbent board of directors resigned,bringing an end to a furious proxy fight started by activist hedge fund Clinton Group, thesecond-largest investor at Wet Seal. It owns 6.9 percent of Wet Seal stock.
Wet Seal boardmembers Jonathan Duskin, Sidney Horn, Henry Winterstern, and Hal Kahn, theboard chairman, resigned. Replacing the old board were all four of ClintonGroup’s nominees: Dorrit Bern, Lynda Davey, Mindy Meads and John Mills.
Board membersstaying on are Kathy Bronstein and John Goodman, who joined the board Sept. 20,and Ken Reiss, the remaining holdover from the former board. Former Wet SealChairman Hal Kahn will serve as a consultant to ensure an orderly transition,said Ken Seipel, president and chief operating officer of Wet Seal.
“This settlementwill provide for a smooth and orderly transition of the board’sresponsibilities, as well as a level of continuity for our employees,” he said.
Clinton Group filed papers with the Securities and Exchange Commission Sept. 6 demanding a change of boardmembers. The company complained that the retailer’s Class A common stockdeclined more than 40 percent this year. Clinton Group argued that while WetSeal has been a solid-performing company in the past, it had failed to reversea decline. The company also contended that the Wet Seal board wasted timeshifting various strategies for the company, and, in July, the board oustedSusan McGalla, Wet Seal’s former chief executive officer, after only 18 months onthe job. Since then the company has been directed by an “office of a chairman,”led by Kahn and assisted by Seipel and Steve Benrubi, Wet Seal’s chiefexecutive officer.
The board foughtback with a campaign of strongly worded letters to its shareholders. Theletters complained that Clinton Group was merely trying to make a big paydayfrom ousting the board and that it had no long-term interest in the company.The letter contended that Clinton’s nominees had little experience in thejuniors market.
On Oct. 3, ClintonGroup filed a statement claiming that Wet Seal’s banker contacted the hedgefund at 3 p.m. on Oct. 2 and stated, “It appears that you have won,” andasked how to proceed with changing the company. However, at 10:30 p.m. that day,the banker called back to say the board had changed its mind and would notresign.
But the old boardcould not argue with a long stretch of declining sales. Same-store sales havedeclined since August 2011. Wet Seal’s September same-store sales declined 12.7percent. Its net sales declined 9.9 percent to $48.3 million.
Retail analyst JeffVan Sinderen of Los Angeles–based financial firm B.Riley & Co. said shareholder votes coming inoverwhelmingly favored the Clinton Group and the board came to the conclusionit did not have support.
The new board is forecast to shape Wet Sealinto a fast-fashion retailer. “They’ll select a new CEO and enhance themerchandising organization,” Van Sinderen said.—AndrewAsch
