Legion Partners, CalSTRS Notch Victory in Perry Ellis Proxy Fight

May 20 2015 | 9:57pm ET

Perry Ellis Founder George Feldenkreis will pass the CEO reins on to his son Oscar in an apparent attempt to appease activist investors who have recently nominated a slate of dissident directors to the company’s board.

Oscar Feldenkreis is currently president and COO of the company. He will become CEO in 2016, according to a statement by the company. Two directors, Joseph Lacher and Joe Arriola, will retire after the company’s 2015 annual meeting. George Feldenkreis, meanwhile, will remain Chairman, a role he has held since February 1993. 

Earlier this month, activist hedge fund Legion Partners and the powerful California State Teachers' Retirement System (CalSTRS) nominated three directors to the Perry Ellis board as well as suggesting splitting roles of chairman and CEO and declassifying its board of directors. 

Together Legion and CalSTRS own 6.3% of Perry Ellis, according to securities filings. 

However, the move is unlikely to placate Legion. Legion founder Chris Kiper has repeatedly noted concerns with the Feldenkreis family’s dominant position within the management of the firm, something that is only minimally addressed by the succession plan.  

“We have serious concerns that the Feldenkreis family has chosen to run Perry Ellis in a manner that benefits its own interests rather than in the best interests of all shareholders,” Legion wrote in its May 8 proxy filing. “We believe maintaining the status quo under the leadership and control of the Feldenkreis family creates an unnecessarily high risk that Perry Ellis will continue to underperform, causing irreparable value destruction for shareholders.” 

The short slate nominated by Legion and CalSTS included Robert Mettler, who previously served as President of Special Projects of Macy’s, Darrell Ross, CEO and President of Luxury Brand Holdings, and Joshua Schechter, who was executive chairman of Aderans Co. and is a principal in Steel Partners, an activist hedge fund. 

Perry Ellis’s operating results also leave it somewhat open to activist agitation. Sales have fallen over the past three years, from $981 million in FY2012 to $890 million in FY2015, while EPS has dropped from $1.71 to -$2.50 over the same time span, according to securities filings.

However, the stock is up more than 80% in the last twelve months – the majority of which has come since Legion’s July 2014 disclosure of its activist position. 

Legion first disclosed its intentions with Perry Ellis in July 2014 when it disclosed a 5.9% stake in the company and the position that profitability and stock price performance did not reflect the strength and value of the brand. At the time, Legion called for “immediate action” to boost the price, including a review of strategic alternatives, as well to split the role of Chairman and CEO and institute a number of other governance measures. 

What is today Perry Ellis was founded by George Feldenkreis in 1960 after he immigrated from Cuba and began operating a textile and clothing export/importer. The company changed its name to Perry Ellis in 1999 when it acquired the license to the brand.

Legion Partners was founded by Ted White, Chris Kiper and Bradley Vizi in 2012. In early 2014, it accepted a seed investment of $200 million from CalSTRS in return for a 30% stake. 

CalSTRS is the largest educator-only pension fund in the world, with a portfolio valued at $191.2 billion as of March 31, 2015.

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