UPDATE: A Group of Investors Again Urges Big 5 to Change Company Management, Seek a Buyer, or Declassify the Board to Increase Shareholder Value
SAN DIEGO, Sept. 3, 2018 /PRNewswire/ -- Earlier this year, a group of investors (the "Group") working with Johnson Fistel, LLP took a stock position in Big 5 Sporting Goods (NASDAQ: BGFV) (referred to below as "Big 5" or the "Company") because they believe that the shares of Big 5 are undervalued and represent an attractive investment opportunity. The Group includes individuals who have decades of experience as C-level executives at publicly traded off-price retail companies as well as extensive experience in the shoe industry (one of Big 5's largest sources of revenue). On May 7, 2018, the Group sent a letter to the Company seeking significant changes, including changes to the Company's senior management and its marketing. The May 7 letter can be reviewed here. Despite a number of calls between the lawyers, the Board of Directors declined to meet with the Group or to consider the Group's recommendations.
On August 17, 2018, the Group sent a follow up letter urging the Board to again entertain a meeting with the Group. Alternatively, the Group urged the Company to voluntarily declassify the Board. Again, after a discussion between the lawyers, the Board of Directors has not agreed to meet with the Board, presumably deciding to keep doing business as usual. With the stock price now at historic lows, the Group again urges the Board to conduct strategic alternatives review. The Group intends to further investigate declassifying the Board of Directors, if the Company will not do so voluntarily, so that shareholders have a stronger role in the next election of the members of the Board of Directors. The Group is also looking to discuss these alternatives with individual or institutional shareholders. (click here to provide your contact information)
A summation of the letter is as follows: About Johnson Fistel, LLP:
Unfortunately, Big 5's stock price is trading at a historically low price. As stated previously, I am working with a group of investors (the "Group") who have taken a stock position in Big 5 because they believe there is significant opportunities to increase shareholder value as Big 5 is deeply undervalued, especially considering its earning potential.
The Group continues to believe that the Company has an exceptional chance to increase Company value in the short term by implementing the proposals previously recommended. The Group believes that the most important change that needs to be made is with the Company's management. The members of the Group have the combined off-price retail experience necessary to rebrand Big 5 and improve the Company going forward. I again strongly recommend that the Board entertain a meeting with the Group to discuss the future outlook for the Company.
As part of the Company's effort to adopt "best practices" in corporate governance, we also strongly request that the Board agree to declassify the Board. As you may know, The Shareholder Rights Project ("SRP") was established by the Harvard Law School Program on Institutional Investors to contribute to education, discourse, and research related to efforts by institutional investors to improve corporate governance arrangements at publicly traded firms.
During three academic years (2011-2012 through 2013-2014), the SRP operated a clinic that assisted institutional investors (several public pension funds and a foundation) in moving S&P 500 and Fortune 500 companies towards annual elections. This work contributed to board declassification at about 100 S&P 500 and Fortune 500 companies. This movement was also supported by empirical studies reporting that classified boards could be associated with lower firm valuation and/or worse corporate decision-making.
The Motley Fool explained the problem with a classified board in an article entitled When Companies Do the Right Thing as follows:
"A classified board structure lets corporate directors serve for different term lengths -- one may be elected for five years, while another comes up for election every three. This can encourage longstanding directors to become complacent, or get too cozy with management. It can also complicate shareholders' ability to replace directors if business starts going bad."
https://www.fool.com/investing/general/2011/07/01/when-companies-do-the-right-thing.aspx. Investopedia describes the classified board as being a "moral hazard of a board of directors being less accountable to the company's shareholders in a structure where their control is more protected." https://www.investopedia.com/terms/c/classifiedboard.asp.
As we understand, Big 5's seven-member Board is classified or staggered so that only two of the seven board members are up for reelection in 2019, two are up for reelection in 2020, and three are up for reelection in 2021. Please let us know if the Board will voluntarily agree to declassify the Board. If it is not willing to do so, the Group intends to take the steps necessary to place the issue on the agenda for the next shareholders' meeting.
About Johnson Fistel, LLP:
Johnson Fistel, LLP is a nationally recognized law firm with offices in California, New York, and Georgia. For more information about the firm and its attorneys, please visit https://www.johnsonfistel.com.
If you are an individual or institutional investor that is unhappy with the Company's direction and are interested in assisting the Group, please call 619-814-4471, or click here to provide your contact information.
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SOURCE Johnson Fistel, LLP
