Proxy Advisors Butt Heads on Pitney Bowes Board Vote
The Pitney Bowes board battle now has two proxy advisory firms picking sides.
On Thursday, Institutional Shareholder Services (ISS) recommended Pitney Bowes shareholders elect four of the five executives that minority owner Hestia Capital nominated to the shipping giant’s board of directors.
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But a day later, rival advisory firm Glass, Lewis & Co. advised shareholders to vote for just two of those nominees, as well as a third nominated by Hestia.
The board election will take place at the company’s annual shareholder meeting on May 9.
Hestia, which is the third-largest shareholder in Pitney Bowes with 8.5 percent of company shares, wants a massive board overhaul amid the company’s declining stock price and earnings and six credit ratings downgrades.
The hedge fund also wants to replace president and CEO Marc Lautenbach after chairman Michael Roth was ousted in March.
In its recommendation, ISS called for Pitney Bowes stockholders to nominate candidates including former Getty Images chief financial officer Milena Alberti-Perez, former Newgistics CEO Todd Everett, former ShippingEasy CEO Katie May and Hestia Capital managing member and chief investment officer Kurtis Wolf.
A fifth nominee from Hestia, former Support.com CEO Lance E. Rosenzweig, was not recommended by ISS. Hestia wants to appoint Rosenzweig interim CEO, if elected. ISS acknowledged that some stockholders may feel it necessary to elect the full slate and said Rosenzweig is equipped to be interim CEO.
The American Eagle Outfitters partner already agreed with Hestia on having May fill the vacant role in its nine-member board based on prior interactions.
On the Glass Lewis side, the proxy advisory firm threw its support behind Rosenzweig, May and Wolf.
The current Pitney Bowes’ board includes Lautenbach; retired UPS president of corporate strategy Steve Brill; former American Express exec Anne Busquet; former Tech Data executive chairman Robert Dutkowsky; former MG Advisors Inc. chairman Mary Steele Guilfoile; retired IBM senior vice president Linda Sanford; former New York State Insurance Fund commissioner and audit committee board chair Sheila Stamps; and former Harley Davidson treasurer and interim chief financial officer Darrell Thomas.
Glass Lewis backed Brill for his “expertise in the nuances of the shipping industry, with a focus on global e-commerce and cross-border operations,” and Thomas, for his two-decade career in banking that could potentially guide the board to formulate and implement debt management strategies.
Hestia has criticized Pitney’s “recklessly aggressive” growth in the Global Ecommerce (GEC) segment, which provides business-to-consumer logistics services for domestic and cross-border parcel delivery, returns and fulfillment. The hedge fund argues that the focus on this unit has hampered growth in other areas of the business like cloud-based letter mailing and parcel shipping software solution SendTech and its mail sorting and distribution service, Presort.
In 2022 alone, GEC saw an EBIT loss of $100 million, on top of a $99 million loss in the unit a year prior. The segment had an EBIT profit of $5 million in 2015, Hestia pointed out in its presentation. Last year, the GEC segment saw revenue decline 7 percent to $1.58 billion.
The hedge fund also called out Pitney Bowes’ for poor capital allocation decisions, particularly a perceived failure to expand in the shipping label space by missing out on the acquisition of solutions like ShipStation, Endicia and ShippingEasy, among others. All three companies were instead acquired by Auctane, which does business as Stamps.com.
Pitney Bowes has also been taken to task for its acquisition and later divestment of Borderfree, which it bought for $395 million in 2015 only to sell it for approximately $100 million last year.
“In summary, shareholders have endured a decade of underperformance and disappointment, there are unanswered questions and serious concerns about the path forward, and power on the board is concentrated in the hands of those directors who objectively have the most potential for a conflict of interest by virtue of their past experience and tenure,” said ISS in its report.
The proxy advisory also called out Pitney Bowes for having “a history of failing to deliver on important self-established expectations, which diminishes the trust that shareholders can place in the board’s vision for the future.”
Pitney Bowes argued in its own presentation that Hestia’s proposal for GEC is “based on unrealistic assumptions.” The company said that although Hestia plans to shed the business that did $600 million in sales and brought in gross margins of less than 5 percent, the firm assumes it can bring in $300 million in new and renegotiated sales at gross margins of more than 10 percent.
“There is no insight whatsoever into the strategy to attain sufficient new 10 percent-plus gross margin sales to compensate for the approximately 50 percent loss in its assumed domestic revenues,” Pitney Bowes said.
The logistics company said its expanded national network of integrated facilities for national, regional or local shipping needs, more predictable costs and reliable, market competitive service levels post-pandemic are expected to drive long-term GEC EBIT margin 6 percent to 8 percent.
An additional dispute from Pitney Bowes said that Hestia’s SendTech strategy is based on replicating Stamps.com’s historical business model, which “changed significantly with worse economics” after the USPS discontinued its reseller program in October 2022. The shipping company also said Hestia’s Presort plan provides no specifics.
Glass Lewis appears to have faith in Pitney Bowes that it can turn the GEC business around.
“As it relates to the GEC business and strategy, all factors considered, we believe management and the board have articulated a clearer, more persuasive vision and a logical approach for this business segment…we believe the GEC business rounds out Pitney’s synergistic portfolio in the shipping and mailing industry, giving it a higher-growth vector to complement its other two slower-growth segments facing secular decline…we believe the long-promised potential of management’s strategy warrants further patience from investors, particularly now that the upfront build-out has been completed and so much capital has been expended.”
