2/28/2024

Problems at Mattel: Despite ‘Barbie’ Success, its Stock Is a Dud. Now Barington is Engaging

Los Angeles Times (02/28/24) Darmiento, Laurence

The “Barbie” movie not only brought in nearly $1.5 billion at the global box office, but also renewed the cachet of a toy old enough to be Medicare eligible next month — earning Mattel (MAT) some $150 million, including doll sales and other revenue streams last year. It all seemed to validate the toy maker's strategy of turning its legacy brands into modern media properties, with more than a dozen other live-action films coming up. “Our job is to take brands that are timeless and make them timely,” said Mattel Chairman and Chief Executive Ynon Kreiz. Yet the company is not feeling much affection from investors. The company's stock performance has been middling, despite a surge after “Barbie” was released and the recent stock market rally. This has caught the attention of Barington Capital Group, which is calling on Mattel to change course and better reward its shareholders. Barington, which kicked off its campaign with a Feb. 1 letter to Kreiz, is taking aim at Mattel's executive compensation and governance structure, while calling for $2 billion in stock buybacks to provide a better return for investors. It hasn't disclosed its stake in the company. “We want to enhance value for all of the shareholders and owners of the company, including the management team,” said James Mitarotonda, chairman of Barington. “The company needs to either fix the businesses or sell them.” Barington calculated that Mattel's stock fell 13.2% in the two years preceding its letter, underperforming the Standard & Poor's 500 index by more than 20%. Shares of Mattel have risen about 7% during February's stock rally, closing at $19.61 on Tuesday. The stock hit a high of $26.97 during Kreiz's tenure in May 2022. In response to the campaign, Mattel said it was looking “forward to engaging with Barington as we do with all our shareholders. We welcome this initial outreach and we are reviewing their letter.” Mitarotonda said Barington has since had “positive” discussions with Kriez but declined to discuss them in detail. Mattel's infant, toddler and preschool segment, which includes Fisher-Price, has experienced a more than 40% decline in annual revenue since 2015 through the third quarter of last year, even as global revenue for such toys grew, according to Barington's letter. Similarly, it said, American Girl's annual revenue fell 61% since 2016, even as global doll revenue grew. Barington calculated that without those sales declines, Mattel would have nearly doubled its four-year revenue growth rate. The investor suggested selling the businesses. “Mattel may not be the right owner of these brands,” its letter stated.

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2/28/2024

Elliott’s Pact With Crown Castle Spurs Lawsuit in Proxy Fight

Bloomberg (02/28/24) Feeley, Jef; Tse, Crystal

Crown Castle Inc. (CCI) co-founder Ted Miller ratcheted up a proxy battle with the cellular tower company’s board, suing directors over a cooperation agreement they reached with Paul Singer’s Elliott Investment Management. Miller, who helped launch Crown Castle in 1994, says the board is looking to entrench itself and is improperly beholden to Elliott, one of the company’s biggest shareholders. Elliott signed a cooperation agreement with Crown Castle in December and was granted two board seats. The agreement amounts to an “unreasonable and disproportionate defensive measure,” Miller says in the lawsuit, filed Feb. 27 in Delaware Chancery Court. He is requesting that the court invalidate the agreement, which he says hurts Crown Castle shareholders by subjecting them to “the whims of Elliott and the artificial constraints imposed” by the agreement on decisions like finding a new chief executive officer or updating business strategies. “The affairs of Delaware corporations, however, must be managed by boards of directors, not backroom deals,” Miller stated in the complaint. Crown Castle’s shares rose 3% to $108.78 at 11:56 a.m. in New York on Feb. 28, giving the company a market value of approximately $47 billion. The shares gained roughly 5% the day after Elliott disclosed its stake in November. Elliott late last year called for Crown Castle to commence a search for new board members and management as well as a review of its fiber business. Elliott said it had a stake of approximately $2 billion in the company, according to a letter to the Crown Castle board. It had earlier requested that the company weigh strategic options for the fiber unit in 2020. Crown Castle announced a CEO search and a review of the fiber operations a month later, as a component of the agreement with Elliott. The company also appointed two new directors, including Elliott portfolio manager Jason Genrich, and said in December that CEO Jay Brown was retiring. Miller, who exited Crown Castle in 2002 according to his LinkedIn page, has roughly $100 million of “economic exposure” in the company’s common stock, together with his affiliates, according to the suit. He has publicly critiqued the Elliott agreement and is urging it to be put to a shareholder vote. He also has dismissed Elliott’s direction for the company as lacking in “expertise, vision and urgency.” Miller and his Boots Capital Management have put forth four board candidates of their own, including Miller himself and his son-in-law. Crown Castle officials have spurned that slate, arguing the nominees “do not possess the relevant expertise and experience.”

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2/27/2024

Bloomin’ Brands CEO on Starboard Value: ‘It's Been a Good Partnership'

Tampa Bay Business Journal (02/27/24) Georgacopoulos, Christina

Bloomin’ Brands (BLMN) closed 41 underperforming restaurants last quarter but plans to open dozens of new locations this year in an effort to strengthen its market share and profitability. The Tampa restaurant giant’s plans to increase its marketing spend by $20 million and add up to 45 restaurants in 2024 largely align with the playbook outlined by Starboard Value after the firm purchased a voting stake in Bloomin’ late last year. Bloomin’ and the New York hedge fund signed a cooperation agreement on Jan. 2 that expanded the company’s board of directors with two new members chosen by the firm, which CEO David Deno said has shifted the priorities of Bloomin’s strategic objectives. Those additions — Starboard Partner Jonathan Sagal and former Darden Restaurants COO David George — have been a positive force within the company, he added. “We’ve had a good interaction in the boardroom — good ideas — and they’ve been a big part of helping us understand how we can move our business forward,” according to Deno. “We’re very optimistic about the year. I think it’s been a good partnership. In our company, the money follows the ideas and good ideas get supported, and we’ll continue to have that discipline,” he added. While Bloomin’s efforts to update restaurants across its portfolio and add new locations predate Starboard, the closing of older, underperforming restaurants appears to have accelerated since the firm’s involvement. In the last quarter of 2023, the company closed 41 locations versus 31 for the entire year in 2022. The primary focus is increasing restaurant sales and traffic at Bloomin’s largest and most iconic concept, Outback Steakhouse, a strategy that will primarily center on marketing and operational improvement at the restaurant level. In an October investor presentation, Starboard nodded to Outback’s wide reach and valuable brand equity and said the concept’s marketing must “re-embrace fun.” “The key ingredient for value creation at Bloomin’ is inside the Outback restaurants ... improved quality and consistency in service and food are part of the recipe,” the firm said in the presentation. There is an emphasis on Outback Brazil in Bloomin’s expansion plans, which Starboard has described as a “gem” that is overlooked by U.S. investors. Deno said Bloomin’ plans to double the concept’s footprint in the country in the next few years after opening 18 locations there last year.

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2/27/2024

Engineers’ Union Throws Support Behind Norfolk Southern, Criticizes Ancora Proposals

Trains (02/24) Stephens, Bill

The Brotherhood of Locomotive Engineers and Trainmen said it will “vigorously oppose” an effort by Ancora Holdings to gain control of the Norfolk Southern Corp. (NSC) board and oust CEO Alan Shaw and Chief Operating Officer Paul Duncan. Ancora is waging a proxy battle and has proposed a slate of eight directors and is touting former United Parcel Service, Inc (UPS) President and Chief Operating Officer Jim Barber as its CEO candidate and former CSX Corp. (CSX) operations chief Jamie Boychuk for the chief operating officer position. “From our vantage point and from what we’ve learned from our union brothers and sisters at CSX, Boychuk was reckless and ran CSX operations into the ground before he was run out by CSX’s management team,” said BLET General Chairman Scott Bunten, one of the union’s officers representing members at Norfolk Southern. “Ancora wants to turn back the clock and return to the failed Precision Scheduled Railroading (PSR) business model with Boychuk’s help that the other Class I railroads are now abandoning.” Like other rail unions, BLET lost membership as the big three U.S. railroads deeply cut their workforces while adopting PSR operating models since 2017. Ancora has been highly critical of Norfolk Southern’s financial and operational results, and has blamed the February 2023 hazardous materials derailment in East Palestine, Ohio, on a poor safety culture at the railroad. The National Transportation Safety Board says the catastrophic failure of a wheel bearing likely caused the wreck. The engineers’ union praised moves Shaw has made to improve safety. The union praised, among other things, Norfolk Southern’s decision to become the first Class I railroad to participate in the confidential close call reporting system. The union pledged to back Norfolk Southern in the proxy contest. Ancora said its plans for Norfolk Southern have “no emphasis on cost cutting, headcount reductions, or short-sighted tactics." Ancora said in a statement that “Policymakers and labor leaders should be able to take comfort in our slate's commitments to honoring union agreements, leveraging the company's existing workforce, and investing in a network strategy that drives growth.”

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2/27/2024

Macy’s to Close 150 Namesake Stores, Grow Luxury Brands

Bloomberg (02/27/24) Rockeman, Olivia

Macy’s Inc. (M) said it plans to close almost a third of its namesake U.S. locations as the department-store chain seeks to fight off a pair of investment firms seeking to buy the company. The company did not give an estimate of the number of employees that will be affected by the closures, though it said in a filing that it would take a $50 million charge related to employee termination costs. Many of the stores are near other Macy’s locations, which could allow some workers to transfer. Macy’s also plans to add 15 new Bloomingdale’s and 30 Bluemercury locations by 2026 — an effort to accelerate growth of its higher-end brands. The announcement, accompanied by fourth-quarter results, follows a $5.8 billion buyout offer from Arkhouse Management Co. and Brigade Capital Management in December. Macy’s rejected the offer, but last week Arkhouse nominated nine directors to Macy’s board as the investor persists in its efforts. In a slide presentation released after the results, Macy’s warned that it expects first-quarter earnings of 10 cents to 16 cents a share, far below the consensus estimate of 45 cents compiled by Bloomberg. The stock fell 1.6% in volatile premarket New York trading. Macy’s shares had declined 4% this year through Monday’s close. The new real estate strategy, which comes less than a month into the tenure of Chief Executive Officer Tony Spring, is expected to free up between $600 million and $750 million of assets through 2026, the company said. Fourth-quarter earnings of $2.45 a share, excluding some items, beat the average analyst estimate and improved from a year ago. For the full year, Macy’s anticipates adjusted earnings of $2.45 to $2.85 a share, below the average analyst estimate of $3 and weaker than last year. The company’s net sales outlook was also below the average analyst estimate. Same-store sales at the Macy’s namesake brand fell 6% on an owned basis in the fourth quarter, while sales at the higher-end Bloomingdale’s fell 1.5%. Much of the company’s value is tied up in real estate. It currently operates 489 Macy’s stores, 32 Bloomingdale’s locations and 158 Bluemercury stores across the US. By closing a further 150 Macy’s stores, the company will be able to prioritize investment in the remaining locations and continue to expand small-format, off-mall locations, Macy’s said in a statement.

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2/27/2024

BP Investor Bluebell Sees Signs of Oil-Strategy Shift But Wants Bolder Action

Bloomberg (02/27/24) Hurst, Laura; Kumar, Nishant

BP Plc (BP) is showing signs of a pivot back toward oil and gas that should boost returns, but is doing it too quietly to benefit its share price, according to investor Bluebell Capital Partners. Four years into its plan to shift away from fossil fuels, BP is under increasing pressure from some shareholders to raise its profitability and narrow the valuation gap with more oil-focused U.S. rivals. Bluebell co-founders Giuseppe Bivona and Marco Taricco have called for a greater emphasis on its core business. BP should bolster investments in oil and gas, cut spending on expensive renewable energy projects such as offshore wind and return more money to shareholders, Bluebell said in an October letter. The company showed signs of moving in this direction in its Feb. 6 earnings presentation, the first since Murray Auchincloss was permanently appointed to the position of chief executive officer, Bivona said. “It looks like BP is already prepared to do, or is planning to do, a lot of the things we’re asking, including increase oil and gas production,” Bivona said in an interview. But this shift will not benefit investors “if the company does not clearly say so.” Speaking to analysts after fourth-quarter earnings that surpassed expectations, Auchincloss emphasized that he would follow a “pragmatic” and “flexible” approach to the energy transition that keeps pace with broader societal needs. He downplayed the possibility of doing further multibillion-dollar acquisitions — after a number of large deals focused on low-carbon energy — and said BP’s oil production could rise beyond the expected 2% to 3% targeted for 2027. Yet he also reaffirmed BP’s commitment to the ultimate goal of net zero emissions, saying the company’s “destination remains unchanged.” For Bivona, BP’s unwillingness to talk out loud about what he perceives as a shift in strategy is keeping a lid on its share price. The stock won’t move higher “unless BP says clearly to the market what their plans are,” Bivona said. If they don’t lay out where they’ll scale back investment plainly “they are deliberately depressing the share price.” Bluebell only has a small stake in BP, but Bivona said he has spoken to several top 40 shareholders, the majority of whom share his concerns on the under-performance of the company’s shares and back the fund’s proposals for a shift in strategy. After a meeting with BP Chairman Helge Lund and interactions with the company’s investor relations department, the door to engagement with the major seems to have closed, Bivona said.

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2/27/2024

Hong Kong-listed Firms See Notable Rise of Gender Diversity on Boards but Advocates Say More Can Be Done

SCMP (02/27/24) Ma, Sylvia

Hong Kong-listed firms have seen a noteworthy increase of female representation on boards, due to favorable regulation, but they still lag regional counterparts when it comes to women in critical executive roles, according to financial indices and analysis tools provider MSCI. Among companies domiciled in Hong Kong, women comprised 19% of board seats as of October 2023, compared with 16% in 2022, according to a report by MSCI. The showing was the fourth-strongest advance from the year before in Asia-Pacific (APAC), pushing Hong Kong above the average level of the region, which climbed 1.6 percentage points in 2023 to 18.2%. MSCI has tracked the gender diversity of corporate boards since 2009, by monitoring the disclosures of the 2,811 constituent companies of the MSCI All Country World Index. The ratio for Hong Kong still trails some of its Asia-Pacific peers, such as Australia’s 40.8%, Malaysia’s 33.1%, Singapore’s 25.3% and Thailand’s 20.3%, but the city is ahead of Taiwan at 14.1% and Japan at 18%. “Hong Kong, which formerly had relatively low levels of female participation in the boardroom among APAC markets, has continued to improve the women representation over the past five years,” commented Guo Siping, head of Greater China ESG and climate research at MSCI. Guo attributed the improvement to regulatory stimulus, because a Hong Kong listing rule from Hong Kong Exchanges and Clearing (HKEX) went into effect at the beginning of 2022, which required that companies with single-gender boards introduce at least one woman board member by the end of 2024. The proportion of companies without females on boards in Hong Kong declined by 8.3 percentage points to 8.8% in 2023, marking the third sharpest decline in the Asia-Pacific area, just behind the 10.8 percentage point decrease in South Korea and 9.1 percentage point drop in Taiwan. Hong Kong could see higher female representation on boards in 2024 to comply with the amendments of HKEX, Guo forecast. She suggested firms weigh raising the bar by having at least 30% of board seats held by women and pivoting their efforts toward female talent retention, because Hong Kong is about to “enter a new phase of ending all-male boards by the end of 2024.” Across the world, about 25.8% of the MSCI index constituents’ board seats were held by women, up from 24.5% a year earlier. In mainland China, the number of firms with female representation on corporate boards grew by 0.9 percentage point to 15.7% in 2023, trailing behind the average in Asia-Pacific and globally.

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