Activist Sandell Slams Ethan Allen Steps as Too Little, Too Late

Oct 9 2015 | 9:02pm ET

Activist hedge fund Sandell Asset Management has blasted recent moves by portfolio company Ethan Allen Interiors as the corporate equivalent of "a fresh coat of paint on a house whose walls are cracked and foundation is sagging."

Sandell owns approximately 5.5% of the Ethan Allen’s stock. The activist investor has been publicly pressuring the company to either sell itself to a private equity company or otherwise take steps to monetize its significant real estate assets, which Sandell estimates are worth some $16 per share. 

At issue is the renewal of CEO Farooq Kathwari’s contract and the appointment of two new directors to fill the shoes of Frank Wisner and Kristin Gamble, Ethan Allen directors who retired after serving on the company’s board for 14 and 23 years, respectively. 

In a press release, Sandell suggested that the board reshuffle was somewhat disingenuous, calling it “a self-serving and transparent attempt to address but one of the numerous governance failings that we have pointed out at the company” that only took place “after the nomination of Sandell’s highly-qualified and experienced slate of director candidates and our firm’s public condemnation of what we believe to be the company’s stale and entrenched board.” 

“Shareholders should not be misled by what in our opinion is the company’s superficial ploy to portray itself as embracing good governance practices – this is clearly too little, too late,” wrote Sandell in the release. 

Sandell also questions whether Domenick Esposito and Tara Stacom, the two new directors, will be able to serve as effective counterweights to the CEO. In its statement, the hedge fund notes that Kathwari’s new contract – for a five year term with two automatic one-year extensions – has no connection between Kathwari’s compensation and total shareholder return. As Sandell has repeatedly pointed out, “Ethan Allen has underperformed its peers by a staggering 119% over a 10-year time frame.”

Sandell began a proxy battle with Ethan Allen in mid-September after accusing the company of moving the company’s annual meeting up in time so as to deliberately limit the amount of time Sandell had available to meet proxy submission deadlines. The fund unveiled a full slate of director candidates for election to the company’s board at its 2015 annual meeting on November 24.

Tom Sandell founded Sandell Asset Management 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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