The
Charming Shoppes Full Value Committee Discloses Nomination of Three Highly
Qualified Director Candidates for Election to the Charming Shoppes, Inc.
Board
at the 2008 Annual Meeting
Committee
Delivers Letter to the Company Highlighting Concerns about the Company’s
Performance
NEW
YORK,
JANUARY 15, 2008 -- The Charming Shoppes Full Value Committee (the “Committee”)
announced today that it has nominated a slate of three director nominees
for
election to the Board of Directors of Charming Shoppes, Inc. (“Charming Shoppes”
or the “Company”) (Nasdaq: CHRS - News) at the Company’s 2008 Annual Meeting of
Shareholders. The members of the Committee beneficially own an
aggregate of 9,276,805 shares, or approximately 7.9% of the outstanding
shares,
of common stock of the Company. Crescendo Partners II, L.P., Series Q
delivered the written notice to the Corporate Secretary of Charming Shoppes
on
January 14, 2008, in accordance with the Company’s Bylaws. The
Committee has nominated the following three highly qualified independent
director nominees: Michael Appel, a Managing Director of Quest Turnaround
Advisors, with significant retail experience, Arnaud Ajdler, a Managing
Director
of Crescendo Partners II, L.P. and Robert Frankfurt, the President of
Myca
Partners. The full bios of the Committee’s director nominees are
below.
The
Committee also sent a letter to the Company on January 15, 2008, highlighting
its significant concerns with the Company’s current business strategy, its
capital allocation process and its poorly performing stock price. In
the letter the Committee outlined various measures to re-focus the Company’s
business operations and unlock the true intrinsic value of the
Company.
The
full
text of the letter sent to the Charming Shoppes Board follows:
January
15, 2008
Board
of
Directors
Charming
Shoppes, Inc.
450
Winks
Lane
Bensalem,
PA 19020
Attn:
Board of Directors
Dear
Members of the Board of Directors:
The
members of the Charming Shoppes Full Value Committee (the “Committee”) currently
own approximately 7.9% of the outstanding shares of Common Stock of Charming
Shoppes, Inc. (“Charming Shoppes” or “the Company”). The Committee is
deeply concerned with Charming Shoppes’ current business strategy, its capital
allocation process and its poorly performing stock price.
The
Committee has nominated three highly qualified directors for the 2008 annual
meeting. Our nominees are committed to a comprehensive review of
Charming Shoppes’ far-flung business operations with the goal of formulating and
implementing a company-wide restructuring plan. We believe the
Company needs to regain its focus on providing high-quality, fashionable
and
differentiated merchandise at value prices to its mostly moderate to middle-
income plus-size female consumer.
The
Committee’s goal is to unlock intrinsic value and restore investor faith in
Charming Shoppes by:
·
|
Exploring
the sale of non-core assets (i.e., real estate, credit card operations,
catalog business) in order to simplify the business and focus
management
on improving its underperforming retail
operations;
|
·
|
Slowing
store expansion to focus management on fixing the current mix
of
businesses and increasing free cash flow by reducing capital
expenditures;
|
·
|
Focusing
on merchandise improvements to appeal to the Company’s core customer
base;
|
·
|
Streamlining
operations and reducing overhead expenses;
and
|
·
|
Buying
back a significant amount of shares with cash flow from operations
and
cash raised through asset sales.
|
The
Committee believes that a combination of (1) a focus on operational excellence
and merchandising improvements, (2) simplification of the business through
asset
sales, (3) a reduction of high corporate overhead and (4) a significant
share
buyback at depressed valuations should improve operating performance and
unlock
the Company’s intrinsic value.
We
believe the current Board of Directors (the “Board”) and senior management are
responsible and must be held accountable for a flawed business strategy
and poor
execution. The Company’s current stock price is 6% lower than where
the stock price was more than 12 years ago when Ms. Dorrit Bern became
Chief
Executive Officer compared to a 154% increase in the S&P 500 Index during
the same period.
Examples
of the Company’s flawed business strategies include:
Poor Capital Allocation Decisions
·
|
Over
the last eleven quarters since the fiscal year ended January
29, 2005, the
Board has approved $346 million of capital expenditures and the
$262
million acquisition of Crosstown Traders in June 2005 for a total
of $608
million. To give a sense of perspective, Charming Shoppes’
current market capitalization is $508 million. The return on
this incremental capital is well below the Company’s cost of capital
leading to a significant loss of shareholder value evidenced
by a 46%
decline in the Company’s stock price during that period of time compared
to a 21% gain in the S&P 500
Index.
|
·
|
Since
acquiring Crosstown Traders in preparation for taking the Lane
Bryant
catalog in-house, the direct-to-consumer division has experienced
a steady
deterioration in revenues and profits. Alternatively, the
Company could have focused on improving its retail and internet
presence
at its core brands and could have generated significant free
cash flow by
licensing out the Lane Bryant Catalog brand to an entrenched
catalog
company.
|
·
|
Charming
Shoppes has spent considerable capital to own and build non-
core assets
rather than embrace outsourcing and the sale of non-core
assets.
|
·
|
The
Company has acquired credit card portfolios whereas most retailers
have
sold similar portfolios realizing that they could not compete
with large
financial institutions and they would be better off focusing
on their core
retail operations.
|
Subpar Operating Performance
·
|
Stagnant
same-store sales over the last six years despite a solid retail
environment and an overall increase in the number of plus-size
women in
the United States.
|
·
|
Fiscal
year 2007 EBITDA margins more than 450 basis points lower than
that of its
most applicable peer group.
|
·
|
Declining
revenues and operating losses at Crosstown Traders following
a poorly
conceived and executed integration plan and management
turnover.
|
·
|
Twelve
presidents for four operating divisions over the last sixteen
quarters
highlights the instability of the division
leadership.
|
·
|
Twenty-two
operating facilities in the US and Hong Kong limit operating
efficiency
and synergies between brands.
|
Lack of Focus on Core Brands
·
|
Senior
leadership consistently chases new growth initiatives, such as
the
Crosstown Traders acquisition, Lane Bryant catalog, Lane Bryant
Outlet,
Petite Sophisticate, Petite Sophisticate Outlet, and Figure Magazine,
instead of optimizing its core
brands.
|
·
|
Poor
merchandising and store-level marketing that is confusing the
Company’s
target audience and is resulting in heavy dependence on couponing
and
discounting, which lower merchandising margins. A companywide
brand and product strategy is needed to effectively target the
diverse
segments of plus-size women across varied ages, races, fashion
tastes, and
economic strata.
|
Management Incentives not Properly Aligned with Shareholder
Interests
·
|
Incentives
tied to pretax profit rather than free cash flow or stock price
motivate
management to focus on growth and ownership of additional assets
vs.
maximizing free cash flow and return on
capital.
|
·
|
Compensation
of top five listed senior executives totals $45.1 million over
the last
three fiscal years despite lower free cash flow and a 46% decline
in share
price.
|
·
|
Despite
this negative share performance, Ms. Bern received $8.3 million
of total
compensation in fiscal year 2007 and was recently rewarded with
a new
three-year employment agreement which includes a 24% increase
in salary
and target bonus and a substantial increase in the number of
shares and
options received annually.
|
Attempts
by Myca Partners, one of the members of the Committee, to initiate a meaningful
dialog with senior management and the Board have largely been
ignored. Ms. Katherine Hudson, the Lead Independent Director, has
refused our numerous attempts to meet with her. Accordingly, the
Committee believes the best way to address these issues is an immediate
change
at the Board to include individuals committed to enhancing stockholder
value.
The
Committee believes that the Board has not properly challenged Ms. Bern’s
business strategy and execution and as such, we have nominated three highly
qualified individuals who possess a combination of retail, apparel, turnaround
management, finance and accounting, and capital allocation experience necessary
to help the Company better chart its course for the future.
The
Committee’s director nominees are:
Michael
Appel has significant retail executive experience. He currently
serves as Managing Director of Quest Turnaround Advisors (“Quest”), a firm that
provides turnaround and crisis management services to boards of directors,
management, creditors and shareholders of companies experiencing financial
and
operational difficulties. Mr. Appel has served as an interim CEO,
interim COO and turnaround advisor for several well-known retailers and
specialty consumer products companies. The companies for which Mr.
Appel has served as CEO include Caswell-Massey Co. Ltd, Ciro, Inc., Laura
Ashley, N.A. and MacKenzie-Childs. Mr. Appel served as financial
advisor to the Creditors Committee in the bankruptcy proceeding of Kasper
ASL, a
leading manufacturer of women’s apparel under the Kasper and Ann Klein brands
that filed for Chapter 11 in February 2002. Mr. Appel assisted in
developing and implementing a successful turnaround plan for Kasper ASL
and was
awarded the 2004 Turnaround of the Year Award by the Turnaround Management
Association for his work with Kasper ASL. Mr. Appel served as Chief
Restructuring Officer of HCI Direct, the leading U.S. direct marketer of
women’s
hosiery; Mr. Appel worked with HCI’s management and Board in implementing a
successful pre- package Chapter 11 filing. Upon departure of the
company’s CEO, Mr. Appel was appointed interim CEO, where he managed the
business, launched a successful new product line and recruited a new
CEO. Mr. Appel began his career in 1973 at Bloomingdale’s where he
spent ten years in merchandising. Mr. Appel graduated Phi Beta Kappa
from Brandeis University and received an M.B.A., with Distinction, from
the
Harvard Business School.
Arnaud
Ajdler has been a Managing Director of Crescendo Partners II, L.P., since
December 2005. Since its inception in June 2006, Mr. Ajdler has
served as a member of the Board of Directors and the Secretary of Rhapsody
Acquisition Corp., an OTC Bulletin Board-listed blank check company formed
to
effect a business combination with an operating business. From June
2004 until June 2006 Mr. Ajdler also served as the Chief Financial Officer,
a
director and the Secretary of Arpeggio Acquisition
Corporation. Arpeggio completed its business combination with Hill
International, Inc. in June 2006 and since such time Mr. Ajdler has served
as a
Director of the surviving company, a NASDAQ listed company. From
August 2006 until the Company was acquired in October 2007, Mr. Ajdler
served as
a director of The Topps Company, Inc., and a NASDAQ listed
company. Mr. Ajdler is also an adjunct professor at Columbia
University Business School where he teaches a course in value
investing. Mr. Ajdler received a B.S. in engineering from the Free
University of Brussels, Belgium, an S.M. in Aeronautics from the Massachusetts
Institute of Technology and an M.B.A. from the Harvard Business
School.
Robert
Frankfurt has served as President of Myca Partners, an investment advisory
services firm, since September 2006. From January 2005 to October
2005, Mr. Frankfurt served as a Vice President of Sandell Asset Management
Corp., a privately owned hedge fund. From April 2001 to September
2002, Mr. Frankfurt served as President of Myer Capital, an investment
advisory
services firm. From 1995 to 2000, Mr. Frankfurt was a Partner at
Steel Partners. His responsibilities at Steel Partners were extensive
and varied, ranging from sourcing public and private investment opportunities
to
hands-on turnaround management of portfolio companies. During his
tenure at Steel Partners, Mr. Frankfurt served on the Board of Directors
of
Puroflow, Inc. Mr. Frankfurt graduated from the Wharton School of Business
at
the University of Pennsylvania with a B.S. in Economics and received an
M.B.A.
from the Anderson Graduate School of Management at UCLA.
CERTAIN
INFORMATION CONCERNING THE PARTICIPANTS
The
Charming Shoppes Full Value Committee (the “Committee”), together with the other
participants named herein, intends to make a preliminary filing with the
Securities and Exchange Commission (“SEC”) of a proxy statement and an
accompanying WHITE proxy card to be used to solicit votes for the election
of
its slate of nominees at the 2008 annual meeting of shareholders of Charming
Shoppes, Inc., a Pennsylvania corporation (the “Company”).
THE
COMMITTEE ADVISES ALL SHAREHOLDERS OF THE COMPANY TO READ THE PROXY STATEMENT
AND OTHER PROXY MATERIALS AS THEY BECOME
AVAILABLE
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. SUCH PROXY MATERIALS
WILL BE AVAILABLE AT NO CHARGE ON
THE
SEC’S WEB
SITE
AT
HTTP://WWW.SEC.GOV. IN ADDITION, THE PARTICIPANTS IN THE PROXY
SOLICITATION WILL PROVIDE COPIES OF
THE
PROXY
STATEMENT WITHOUT CHARGE UPON REQUEST.
The
participants in the proxy solicitation are Crescendo Partners II, L.P.,
Series
Q, a Delaware limited partnership (“Crescendo Partners II”), Crescendo
Investments II, LLC, a Delaware limited liability company (“Crescendo
Investments II”), Crescendo Partners III, L.P., a Delaware limited partnership
(“Crescendo Partners III”), Crescendo Investments III, LLC, a Delaware limited
liability company (“Crescendo Investments III”), Myca Master Fund, Ltd, a Cayman
Islands company (“Myca Master Fund”), Myca Partners Inc., a Delaware corporation
(“Myca Partners”), Eric Rosenfeld, Arnaud Ajdler, Michael Appel and Robert
Frankfurt.
Crescendo
Partners II beneficially owns 7,354,125 shares of Common Stock of the
Company. As the general partner of Crescendo Partners, Crescendo
Investments II may be deemed to beneficially own the 7,354,125 shares of
the
Company beneficially owned by Crescendo Partners II.
Crescendo
Partners III beneficially owns 378,275 shares of Common Stock of the
Company. As the general partner of Crescendo Partners III, Crescendo
Investments III may be deemed to beneficially own the 378,275 shares of
the
Company beneficially owned by Crescendo Partners III.
Eric
Rosenfeld, as the managing member of Crescendo Investments II, which in
turn is
the general partner of Crescendo Partners II, may be deemed to beneficially
own
the 7,354,125 shares of the Company owned by Crescendo Partners
II. Additionally, Eric Rosenfeld, as the managing member of Crescendo
Investments III, the general partner of Crescendo Partners III, may be
deemed to
beneficially own the 378,275 shares of the Company owned by Crescendo Partners
III.
Myca
Master Fund beneficially owns 1,523,405 shares of Common Stock of the
Company. As the investment manager of Myca Master Fund, Myca Partners
may be deemed to beneficially own the 1,523,405 shares of the Company
beneficially owned by Myca Master Fund.
Robert
Frankfurt, as the President of Myca Partners, the investment manager of
Myca
Master Fund, may be deemed to beneficially own the 1,523,405 shares of
the
Company beneficially owned by Myca Master Fund. Additionally, Robert
Frankfurt, as a member of a “group” for the purposes of Rule 13d- 5(b)(1) of the
Securities Exchange Act of 1934, as amended, may be deemed to beneficially
own
the 7,354,125 shares owned by Crescendo Partners II and the 378,275 shares
owned
by Crescendo Partners III. Mr. Frankfurt disclaims beneficial
ownership of the shares owned by Crescendo Partners II and Crescendo Partners
III.
Arnaud
Ajdler owns 15,000 shares of Common Stock of the Company. As a member
of a “group” for the purposes of Rule 13d-5(b)(1) of the Securities Exchange Act
of 1934, as amended, Mr. Ajdler is deemed to beneficially own the 7,354,125
shares owned by Crescendo Partners II, the 378,275 shares owned by Crescendo
Partners III and the 1,523,405 shares beneficially owned by Myca Master
Fund. Mr. Ajdler disclaims beneficial ownership of the shares owned
by Crescendo Partners II, Crescendo Partners III and Myca Master
Fund.
Michael
Appel, through the Michael Appel Rollover IRA account, owns 6,000 shares
of
Common Stock of the Company. As a member of a “group” for the
purposes of Rule 13d-5(b)(1) of the Securities Exchange Act of 1934, as
amended,
Mr. Appel is deemed to beneficially own the 7,354,125 shares owned by Crescendo
Partners II, the 378,275 shares owned by Crescendo Partners III and the
1,523,405 shares beneficially owned by Myca Master Fund. Mr. Appel
disclaims beneficial ownership of the shares owned by Crescendo Partners
II,
Crescendo Partners III and Myca Master Fund.