Sandell Writes Second Letter to Ethan Allen, Warns Of Proxy Battle

Aug 26 2015 | 2:34pm ET

Activist investor Tom Sandell has penned another letter to the management of Ethan Allen Interiors, his second in two weeks, in which he urged the company to settle his outstanding issues and avoid a costly and expensive proxy battle – one that Sandell says he is prepared to undertake if necessary.

The letter follows one written on August 14th in which Sandell, founder of activist hedge fund Sandell Asset Management, took serious issue with the decision by Ethan Allen, unveiled in its August 12 10K to unilaterally move its 2015 annual meeting up several weeks to October 15. The company’s annual meeting has traditionally been held in November, and Sandell interpreted the move as a tactic designed to limit the time available for shareholders to meet proxy record date requirements. 

Perhaps in response to Sandell’s communication, Ethan Allen’s board ultimately re-scheduled the meeting to November 25th. However, Sandell writes that he was subsequently “taken aback” by an August 18 email from Ethan Allen CEO Corey Whitely stating that the company would engage Sandell regarding his concerns “later in September after Labor Day.”

“We find this refusal to engage in any dialogue with us for such an extended period of time to be irresponsible and possibly reflective of a strategy to play for time,” wrote Sandell in the letter. 

Given the new annual meeting date, the nomination window for director candidates opens August 26 extends through September 25. Sandell has repeatedly stated that he would prefer to open a constructive dialog with the company’s management, preferring “a cordial resolution…and avoid[ing] the need for a proxy contest.” 

“We do not view waiting until the second week in September as timely by any stretch of the imagination,” the letter states. “We ask it to enter into discussions with us immediately.  If the Company refuses to do so until the second week of September, we will have no choice but to proceed with plans for a public solicitation of proxies, which will no doubt serve to decrease the chances for a negotiated settlement.  

Sandell is the beneficial owner of approximately 1.6 million shares, or 5.5%, of Ethan Allen’s stock. In July, he described the company as his single best idea, citing Ethan Allen’s 70 stores, eight manufacturing plants, 200-room hotel and 18 acres of land in Connecticut as anchoring the nearly debt-free company’s market capitalization of approximately $830 million. Sandell puts Ethan Allen’s intrinsic value at approximately $41 per share, or more than 35% above the stock’s current levels near $29.50.

Sandell Asset Management was formed in 1998 and generally pursues an event-driven and special situations strategy. It has approximately $1 billion in assets under management, and recently won a battle with PartnerRe over its merger plans. It has led notable campaigns against Bob Evans Farms, where it won four board seats in a proxy battle, TransCanada Corporation and Brookdale Senior Living.


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