Gloves off in battle for Depot
10 April 2008
The battle to woo shareholders is turning nasty ahead of Office Depot's proxy vote on 23 April.
Incumbent board members, current CEO Steve Odland and former CEO David Fuente, face a vote to keep their seats after activist shareholder the Woodbridge Group put forward its own nominees, ex-Depot COO Mark Begelman and former Staples COO Marty Hanaka.
And now both sides are engaged in a mudslinging campaign to discredit the other’s credentials as the right people to turn the company’s performance around.
In its latest letter to shareholders on 31 March and in a 9 April investor presentation, Depot launched into stinging attacks on both Begelman and, in particular, Hanaka, claiming that both have previously been “rejected” for senior management positions and that they are “not the right people to serve our stockholders in any capacity”.
Depot focuses on Begelman’s career since he left the company in 1995, describing his retail management as “irresponsible” and arguing that he has “a track record of failed business ventures”, most notably with the Mars Music retail chain he founded, but which went bust in 2002 due to Begelman’s “fundamentally flawed business plan”.
Hanaka comes in for a much more personal attack as Depot goes for the jugular, quoting a 1997 Wall Street Journal article which claimed that he “resigned as president and COO of Staples after being arrested for assaulting a female co-worker [with whom he] had been involved in a two-year extramarital affair”.
Voting Hanaka to the board “may disrupt Office Depot’s significant business with female-owned companies”, says the Depot investor presentation.
The man behind the Woodbridge Group proxy, 63-year-old Florida property and banking entrepreneur Alan Levan, also comes in for scathing criticism from Depot over his recent “business failures”, portraying him as a “poor steward of shareholder value”. Much is made of the fact that, until recently, he only held 200 shares in Office Depot.
But Levan has been fighting his own corner too.
A 9 April open letter to shareholders from the Woodbridge Group tears into Odland’s record as Depot CEO and highlights his reported $17.8 million compensation package in 2007 “as shareholders have watched Office Depot’s share price decline 70 percent during his tenure”.
Recent events at Office Depot such as the mistiming of vendor payments in the accounts and problems with federal office supplies contracts have also bolstered Woodbridge’s case against Odland, who is accused of a “lack of oversight and [a] loose grip on operations”.
Fuente is not forgotten either as Levan accuses him of “cashing out at the peak while investors are left to shoulder the burden” after he [Fuente] sold one million shares back in May 2006 when the share price was at its highest, leaving shareholders “hopelessly watching the value of their investment plummet”.
Now shareholders have less than two weeks to digest the arguments and counter-arguments before the proxy vote on 23 April.
Ironically, Odland, who just a few weeks ago seemed a safe bet as one of the big CEO casualties of the year, may emerge from this saga in a much stronger position.
The board has come out publicly in support of him, and the main institutional shareholders, who are probably not Odland’s number one fans at the moment, might be even more wary of the opportunistic challenge by Levan and give their support, albeit reluctantly, to their embattled chairman and CEO.
This would then give Odland the breathing space to prove if there is any substance to his turnaround plan.
Come 23 April, he may well be thanking Alan Levan for launching this challenge against him.
Read Depot’s letter to its shareholders: Click here
For the Woodbridge point of view: Click here
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