ShopHQ’s dissident shareholders, hell-bent on ousting the home shopping network’s CEO Keith Stewart, have taken a very unusual step. They have launched a website featuring a video of their nominees for ShopHQ’s board.
The Clinton Group has nominated six people — including several TV veterans — to be ShopHQ’s directors and is soliciting votes for them at the company’s June 18 meeting.
The video and Clinton Group’s other proxy materials are available at http://addvalueandvision.com. Take a gander.
The Clinton Group nominees for ShopHQ’s board include former HSN CEO Mark Bozek, who does most of the talking during the video.
Another nominee who we once interviewed in our prior life at Multichannel News, reality TV king Thom Beers, does his pitch with one of the Emmys he won during his career sitting in front of him. Beers is now CEO of FremantleMedia North America, the producer of “American Idol” and “America’s Got Talent.”
Board nominee Tommy Mottola, described as “the iconic former Chairman and CEO of Sony Music Entertainment,” also eloquently talks and appears in the video. He is the ex-husband of diva Mariah Carey.
The nominees Ron Frasch, the former President and Chief Merchandising Officer of Saks Fifth Avenue; Bob Rosenblatt, the former President of HSN and Tommy Hilfiger and CFO of Bloomingdale’s; and Fred Siegel, the former SVP of marketing at QVC, are also in the video picture.
“We believe ValueVision can be a great and highly profitable business, and one that creates tremendous value for shareholders,” Clinton Group President Gregory Taxin said in a statement Wednesday. “We encourage all ValueVision shareholders to read our materials and watch the video at http://www.AddValueAndVision.com.”
Along with the definitive proxy statement, The Clinton Group will soon be mailing this cover letter to ShopHQ shareholders.
We are investors alongside you in ValueVision Media Inc. (“ValueVision” or the “Company”). We believe the Company has a terrific collection of assets that can be operated in a way that creates significant shareholder value. We are seeking to replace a majority of the current directors of the Company to foster a new vision and strategy for ValueVision that we believe can help us all by generating sustained profits and share price appreciation.
We believe the Company and Board of Directors are not doing enough with the Company’s assets and that the current Board suffers from a lack of ambition. Reading the Board’s recent letters and proxy statement, we cannot help but conclude that the current directors are very content with the Company’s market position and financial performance. The Board touts, for example, that the Company is now losing less money each quarter than it once did. Color us unimpressed. The current Board has declared victory while the Company languishes as a declining, third-place market share player in a three-company market.
In our view, five years into the tenure of the Chief Executive Officer, Keith Stewart, the Board should only be satisfied by consistent profitability and sustained value creation for shareholders. Instead, doing slightly less bad is seemingly enough.
Not for us. We are disappointed by the performance of the Company and its leadership team.
ValueVision stock trades today at approximately one-third the average price for which it traded during the ten years prior to Mr. Stewart’s tenure. The Company is valued by the stock market at a mere tenth of HSN and a thirtieth of QVC. And, while ValueVision stock has moved sideways since January 2010, HSN and QVC have generated significant value for their stockholders, including substantial and growing profits.
The current Board seems to focus exclusively on the stock performance during the first eleven months of Mr. Stewart’s tenure, from the financial crisis low in January 2009 to a rebound in December 2009. While it is true that ValueVision’s stock price bounced off its bottom of mere pennies per share during the period of the financial crisis, so too did the stocks of scores of other companies. Since then, however, ValueVision’s stock price has been essentially flat. For how long will the Board allow Mr. Stewart to produce no returns for stockholders just because the stock recovered from its financial-crisis bottom in the back half of 2009?
With respect to the fundamental financial performance of the Company, the Board appears satisfied with declining losses, though we know that shareholders cannot survive on losses, no matter how small. And how disappointed must Mr. Stewart be? After all, Mr. Stewart himself declared confidently that he could grow the business into a $1.1 billion revenue generator, producing more than $12 of sales per year on average in each home in which the Company’s programming was available. Mr. Stewart repeatedly stated this goal in 2009, 2010 and 2011. And, frankly, by many measures this was a rather modest goal: HSN generates $24 of sales per year per home, and QVC substantially more. Even ValueVision itself generated more than $10 of sales per home in every fiscal year from 1999 to 2007.
But, alas, Mr. Stewart did not achieve his financial performance goals. Or come close. Last year, the Company generated just $640 million in revenue, or $7 in sales per home, 40% below his own target. Moreover, fully five years after Mr. Stewart was put in charge, and despite his repeated predictions of operating cash flow margins in double digits, the Company continues to lose money.
While HSN and QVC have increased revenue, sales per home, gross profit and EBITDA in the United States compared with their pre-recession levels, ValueVision is a diminished version of its former self; on all these critical metrics, ValueVision is performing worse than it did in 2006. It is no wonder, then, that the stock has not recovered to its 2006 year-end level of $13. Or even half that.
Yet, the Board says it is satisfied and that we (and you) should be too. Well, we are not.
We are, more precisely, gravely disappointed by the Company’s record of losing money in 20 out of the last 21 quarters. We do not equate losing less money with success and we are concerned about a stock price that has not recovered to even half of its pre-recession level. We are worried about the lack of a plan to reverse these trends or, seemingly, even a recognition of the need for change. And, we are disappointed in the Chief Executive, who has missed his own stated goals by a wide mark and has been lapped by the industry leaders, who continue to grow their share through innovation. (We note that Mr. Stewart missed the Company’s target performance by such a wide mark in three of his five years as CEO that he failed to earn any annual incentive bonus in those years.) If Mr. Stewart and the Board have a vision for break-out performance and distinguishing the Company from its recent history or its competitors, we have not heard it.
We think losing money every quarter while the stock price moves sideways calls for a hands-on, energetic management team with a detailed turnaround plan. Instead, the Company’s Board permits no fewer than nine of the senior officers (including the President, the Chief Operating Officer, the Chief Financial Officer and the Chief Merchandising Officer) to literally “phone it in” one or two days per week while they “work” from their homes, many more than 1000 miles from the Company’s headquarters. Since when do million-dollar-per-year executives only have to show up for work a few days a week? Is it possible that the Company has not achieved Mr. Stewart’s own goals or stemmed the loss of market share because the executive team is not in Minneapolis, working with their direct reports, vendors, on-air talent and the finance team consistently, Monday through Friday?
We fear this lackadaisical approach to corporate management is, sadly, just part of the problem. The bigger issue is that the Board and executive team do not have a strategy to break the pattern of under-performance.
We do. We believe this situation calls for new directors with deep industry experience and judgment.
The Clinton Group has therefore nominated six independent professionals to serve on the Board of ValueVision. None of these nominees is an employee of the Clinton Group, nor does any have any other tie to our firm. They each do have notable and relevant backgrounds and together can form the backbone of a fresh new Board, implementing what we believe is a plan for success. We trust that these nominees will serve the interests of all shareholders.