Forzani Shareholders urged to vote the YELLOW proxy supporting Crescendo
NEW YORK, May 27 /CNW/ - Crescendo Partners LP ("Crescendo") announced
that it is mailing to Shareholders of The Forzani Group Ltd. ("Forzani") a
letter that urges Shareholders to vote their YELLOW proxy in support of
Crescendo's nominees to the board of directors of Forzani. In the letter
Crescendo provides further information on its rationale for seeking
Shareholder support for adding two experienced and knowledgeable nominees to
the Forzani board including the lack of accountability of the current board
for the long-term performance of Forzani; no sense of urgency; the average
length of tenure of the members of the current board; the lack of strategic
direction of Forzani; failure to maximize value for shareholders and the
absence of alignment of the members of the current board of directors with the
interests of Shareholders. Crescendo is one of the largest Shareholders of
Forzani, owning approximately 1,560,300 or 5.1% of the Class A shares of
Forzani entitled to be voted at the June 10, 2009 annual meeting.
The letter to Shareholders has been filed today with Canadian securities
regulators and will be accessible on the System for Electronic Document
Analysis and Retrieval (SEDAR) at www.sedar.com.
This announcement is not a solicitation of proxies, which will only be
done pursuant to applicable law.
The complete text of the letter to shareholders is provided below.
May 27, 2009
Dear Fellow Shareholders:
Crescendo, one of the largest shareholders of The Forzani Group Ltd., is
urging you to support like-minded shareholders to effect positive and
constructive change in the board of directors of Forzani. As the owner of
approximately 5.1% of the Company's outstanding common shares, our interests
are directly aligned with yours.
In the proxy circular we recently mailed to you, we outlined our rationale
for seeking your support for adding our two experienced nominees to the
Forzani board. The Company immediately recommended that you oppose our plan
while acknowledging in the same press release that it had not taken the time
to review our circular. The Company has followed up its initial correspondence
with personal attacks on our nominees rather than addressing the substantive
issues that we are raising.
- Lack of Accountability - Crescendo believes that the board of
directors should be accountable for the long-term performance of
the Company. Let's look at the facts:
- In November 2003, the Company outlined a four-year plan for
revenue and EBITDA. In fiscal 2003, the Company's EBITDA
margin was 8.9%. The November 2003 four-year plan included a
target EBITDA margin of at least 12%. Since that time, under
the current board, actual performance has fallen dismally
short, with annual EBITDA margins never exceeding 9.2% and an
EBITDA margin of only 7.2% in fiscal 2009. Similarly, fiscal
2008 revenue was 26% below target.
- In 2003, the Company recognized the poor performance of
company-owned stores relative to franchised stores, yet more
than five years later the problem has not only persisted, it
has worsened. Franchise same store sales averaged an increase
of 6.2% per year from 2003 through 2009 versus an increase of
just 1.1% per year for company-owned stores. Further, sales per
square foot, an important measure of store productivity, has
averaged 37% higher at franchised stores than at company-owned
stores over the last five years.
- No Sense of Urgency - Crescendo is concerned that there is no
sense of urgency from the current board. In the November 2003
four-year plan, the current board indicated it was focused on poor
corporate comparable store sales; product presentation display and
selling space improvement; and growth through a bigger store
format. Five years later, all three of these strategies are part
of the plan recently announced by the Company. Why weren't these
issues addressed during the last five years? Similarly, Forzani's
Chief Executive Officer was recently quoted as saying "They make
it sound like (reducing the number of Forzani stores) was a new
idea, but we have been talking about this to shareholders for a
long time. Going from 16 banners to nine is not something you do
overnight." We agree that this does not happen overnight, but it
should not take five years either. The time for talking about
change is over.
- Length of Tenure - Maybe this lack of urgency has to do with the
fact that the incumbent directors average more than 10 years on
the Forzani's Board.
- Lack of Strategic Direction - In its haste to grow revenue, the
Company has accumulated a total of 16 banners creating a
tremendously complex business. Despite this top line growth, the
Company has failed to create value for shareholders. Growth only
creates value if it delivers returns in excess of the business's
marginal cost of capital. Given Forzani's low single digit returns
on incremental equity invested in the business over the latest
five years, it is apparent that this board has not delivered value
enhancing growth. We believe it is time to simplify the business
and focus on increasing profitability and return on equity.
- Failure to Maximize Value - Crescendo believes that the current
board missed a unique opportunity to sell the Company at a very
attractive price in the summer of 2007 after being approached by a
number of interested parties (analysts at the time indicated that
any transaction would likely be consummated in the mid to high
$20s). Subsequently Forzani's shares have traded down to a low of
$6.56 per share.
- Absence of Alignment of Interest with Shareholders - The
independent directors of Forzani only own 0.4% of the shares
outstanding. We are concerned by this lack of ownership and wonder
if this could be a reason behind some of the problems outlined
As a large shareholder, our interests are directly aligned with yours. We
believe that our nominees will bring a renewed sense of urgency and introduce
a true owner-mentality into the boardroom.
In light of the Company's track record, you need to ask yourself:
- Can we have confidence the current board will successfully steer
the Company in the right direction?
- Can we have confidence that the current board will meet the
targets that they have outlined?
In the five and a half years since the November 2003 four-year plan was
announced, the incumbent board has clearly failed to execute on its plan and,
with the Company's stock down 23% over this timeframe, has failed to deliver
any value creation. Shareholders need representation on the board to closely
monitor the execution of this plan and to hold management accountable for its
performance. Shareholders need representation on the board with the
appropriate skills and experience and a sense of urgency to do what the
current board has been unable to do - enhance the value of the Company for all
shareholders. Crescendo's nominees bring a mix of specialty retail, capital
allocation, financial markets, merger and acquisition, and accounting
experience that we believe the incumbent board vitally needs.
Our proposal to elect our two nominees to work with six incumbent members
of the current board of directors and management is intended to bring a purely
shareholder-focused perspective to the Company. Under our proposal, Crescendo
will not be in a position to control the board, only to instill a sense of
urgency and commitment and to assist the board in maximizing Forzani's true
Crescendo recognizes the importance of all regional markets to the
Company and we have full confidence in the ability of senior executives and
corporate officers of the Company to continue to effectively work with all
franchise communities while liaising with the board of directors on
Crescendo has a long history of demonstrating that it is a patient and
constructive investor and is recognized throughout North America for adding
value to the companies in which we have had nominees serve on the board of
directors. We are convinced that our nominees have the relevant experience and
expertise critical to enhancing the value of Forzani.
We urge you to support the election of the two new directors to the board
of Forzani. Please vote Crescendo's YELLOW proxy. If you have any questions
and/or need assistance, please call Laurel Hill Advisory Group at
1-888-726-9085 or outside North America call collect at 1-416-637-4661.
Thank you for your consideration.
CRESCENDO PARTNERS L.P.
"Eric S. Rosenfeld"
Eric S. Rosenfeld
For further information:
For further information: Eric S. Rosenfeld, Managing Member, Crescendo
Partners LP, Contact info: Eric Rosenfeld, erosenfeld "at"
crescendopartners.com, (212) 319-7676