What an Activist Investor Wants From VF Corp.
Activist investor Engaged Capital has VF Corp. in its line of sight.
On Tuesday, the Newport Beach, Calif.-based hedge fund laid out a pathway that would cut more than $300 million in costs at the Denver-domiciled owner of The North Face, Vans and Timberland. Engaged also wants VF to sell some of its real estate, look at options for assets beyond its biggest powerhouse brands and shake up the board, moves right out of the typical activist playbook.
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“We are aware of Engaged Capital’s investment in VF Corporation and their comments regarding our company. We value the views of our shareholders and seek to maintain an open dialogue with the investment community,” a spokesman for VF said after the plan was unveiled at the 13D Monitor Active-Passive Investor Summit in New York. “VF has globally recognized and iconic brands and best-in-class talent. VF’s Board and leadership team, including our recently appointed CEO Bracken Darrell, are taking immediate and decisive actions to strengthen the company’s position and return VF to strong, sustainable, and profitable growth in the interests of all our shareholders.”
Engaged Capital isn’t new to the world of fashion. Back in December 2013, the firm founded by Glenn Welling took a stake at Abercrombie & Fitch Co., pushing the retailer to oust then-CEO Michael Jeffries and look at putting itself up for sale. That saga ended when the Hollister parent added four new independent directors to its board.
Most activists attack because investors believe companies need new blood on their boards to perk up performance.
In the case of VF, it could reinvest $100 million of cost savings to accelerate innovation and grow The North Face and Vans, its biggest brands. Engaged also alleged that the company underinvested in Vans, and said former CEO Steve Rendle “pursued a risky M&A strategy” when it forked over $2.1 billion to acquire Supreme in 2020, which significantly leveraged VF’s balance sheet. Engaged said proceeds from divestitures could pay down a good chunk of the $7.9 billion in debt VF had as of July 1, according to Bloomberg. These maneuvers could get VF’s share price to the mid-$40’s within three years, it claimed.
Shares of VF jumped 14.2 percent to close Tuesday at $18.46 in Big Board trading following news of Engaged’s involvement as a top major shareholder. This is significantly down from its close of $100 a share on Jan. 2, 2020. Under Rendle’s tenure, VF spun off its Wrangler and Lee jeans businesses, which became Kontoor Brands Inc. Poor performance, including troubles at VF’s Vans business, likely contributed to Rendle’s exit from VF last year. Darrell, VF’s new CEO, joined the company in July.
According to Engaged’s logic, Timberland, Supreme and Dickies could end up out in the cold. VF has already put the backpack business including Kipling, Eastpak and JanSport on the market. VF also owns other “emerging brands” such as performance players Icebreaker and Smartwool.
VF does about $11.6 billion in annual revenue. Engaged targeted its enterprise value at $11.9 billion, with a current market capitalization of $6.0 billion.
VF posted a first-quarter net loss that widened to $57.4 million from $56 million in the same year-ago period, on an 8 percent decline in net sales to $2.1 billion. The apparel giant plans to post second-quarter results on Oct. 30, 2023.
