Marcato Capital Management continues to up the pressure on Deckers Brands.
Since snapping up a 6 percent stake in Ugg’s parent company in February, the activist hedge fund has been determinedly pushing management to make aggressive changes.
In its latest move, on Monday, Marcato filed suit against Deckers as well as individual board directors to force the company to hold its annual shareholders meeting on Dec. 14 and designate the hedge fund’s board nominees as “continuing directors” so Marcato could avoid hefty proxy penalties to the tune of millions.
After months of expressing concern over Deckers’ performance and its handling of the Ugg brand, Marcato managing partner Mick McGuire said in June that he would attempt to overhaul Deckers’ board if the company’s strategic review process — announced in April — didn’t result in a sale.
Last month, Marcato made good on those promises, nominating a full slate of new directors to replace Deckers’ existing board.
At the time, Marcato said its attempts to engage constructively with the company’s board to add new directors and “develop a strategy focused on profitable growth while improving margins and returns on invested capital” had been “met with significant resistance.”
In its suit — filed in Delaware Chancery Court — Marcato doubled down on those comments: “[Deckers] Director Defendants have responded to Marcato’s call for change the same way they responded to Marcato’s proposals regarding the business: defensively and uncooperatively,” the filing reads.
Marcato goes on to allege in the filing that Deckers has “unlawfully deferred the 2017 Annual Meeting until December 14, 2017, more than 15 months since the company’s last annual meeting held on September 12, 2016,” and has left open the possibility that the date of the meeting may be moved.
In a statement today, Marcato went on to accuse Deckers of employing a “scorched-earth defense” by “delaying its annual meeting and refusing without basis to designate Marcato’s nominees as continuing directors before the vote.”
“Deckers’ board must be held accountable for violating the core principles of corporate democracy by preventing shareholders from exercising their right to vote without suffering entirely avoidable, value-destroying consequences,” the company added.
In a statement today, Deckers shrugged off Marcato’s latest actions, noting that it has nailed down a date for its annual meeting.
“Our Annual Meeting of Stockholders is already scheduled for December 14, 2017,” the company said. “Marcato’s lawsuit is unnecessary, a distraction from our successful transformation, and a self-serving attempt to advance its own interests at the expense of all other stockholders. We will vigorously defend against Marcato’s claims and will continue to work hard on behalf of all stockholders.”
Deckers hero brand Ugg has experienced uneven sales for much of the past two years; however, the firm’s most recent earnings release showed signs of improvement. Although management attributed at least some of the gains to a shift in fall order shipments and not necessarily heightened demand, the company has been working aggressively to turn around slowing demand, with buzzy partnerships and larger expansion into categories such as men’s. Nevertheless, Marcato has been critical of Deckers handling of Ugg, accusing the company of failing to capitalize on the momentum of the brand.
In addition to requesting that the courts ensure Deckers holds its shareholder meeting on Dec. 14, Marcato’s suit seeks a mandatory injunction requiring Deckers to approve and nominate its board nominees.