ShopHQ’s dissident shareholders have gotten some support from a third party, but the home shopping network pooh-poohed the report.
The Clinton Group Inc. said Friday that a research firm, ISS Proxy Advisory Services, has recommended yesterday that ShopHQ stockholders support change in the composition of the home shopping network’s board by voting on the GOLD proxy card (namely, Clinton’s nominees) at this year’s annual meeting.
ISS advises about 1700 institutional investors, pension funds and mutual funds across the globe on annual and special meeting votes.
ShopHQ quickly issued its own press release dissing ISS’s findings.
In its report, ISS noted that Clinton Group had “made a case for change at the board level [and] provided the outline of a strategic plan which appears to address the most significant failures identified in the course of this proxy contest.”
Therefore, ISS recommended that its clients vote for none of the incumbent directors and instead vote for the Clinton Group’s slate.
“We are pleased that ISS recognizes the importance of change at ValueVision (ShopHQ’s corporate name,” Clinton Group President Gregory Taxin said in a canned statement. “ValueVision has a terrific opportunity to build a profitable and valuable business. We believe that new directors can help ensure ValueVision takes full advantage of this opportunity and creates significant value for shareholders.”
ISS’ research report also said:
Clearly, ValueVision is not monetizing its distribution as effectively [as HSN and QVC]. … The disconnect in household monetization appears to be driven by ValueVision’s misaligned merchandise mix, a lack of proprietary brands and outdated programming.
ValueVision has been shifting product mix over the past several years, but the change has been slow and the company missed its own commitments for greater category shift by 2013.
[A]nother factor lowering ValueVision’s per household monetization compared to peers is its product mix that relies heavily on nationally available brands. … A reliance on nationally available brands does not appear to be a long-term viable strategy.”
[L]ooking at the programming [schedule] … it is easy to see why QVC and HSN are attracting more viewers to [their] more differentiated, diversified and engaging content. … [T]he company needs to diversify and create more engaging programming and programming personalities.
In order for ValueVision to generate significant operating leverage off its high percentage of fixed costs, the company needs to increase revenues through improved household monetization.
According to ISS, the Clinton Group “has laid out a plan to create proprietary brands, improve product mix and develop creative programming, which appears needed at ValueVision.”
The company’s annual meeting will be held on June 18.
So what did ShopHQ have to say about all this?
We strongly believe that ISS reached the wrong conclusion in failing to recommend that shareholders elect ALL of ValueVision’s eight, highly qualified director nominees.
We believe that shareholders should seriously question ISS’s report due to numerous material errors and omissions:
In its very first “Key Takeaway,” ISS overstates Clinton’s share ownership by no less than 250%;
ISS fails to disclose that Clinton, during the course of its campaign to take control of ValueVision’s Board, has reduced its ownership position from a peak of 5.9% to 4.0% of the Company’s outstanding shares, according to its latest filings;
Despite acknowledging that ValueVision stock, under the current Board and management team, has outperformed HSN and QVC by 120.6 and 90.7 percentage points respectively, since August 15, 2012, ISS recommends giving 50% of the Board seats to a dissident shareholder that owns only 4% of the Company’s shares, which is substantially less than the Company’s CEO;
ISS incorrectly states that ValueVision has only two proprietary brands, when in fact ValueVision has over 20 proprietary brands, reflecting approximately 25% of total sales, and made this fact clear to ISS;
ISS makes claims for the qualifications of the Clinton nominees it recommends, despite the fact that three of these nominees’ — Messrs. Bozek, Beers and Siegel — most recent experience in eCommerce was leading a startup called Evine that, despite launching more than two years ago, consists of only a single page that lacks any shopping functionality; and
ISS ignores Clinton’s materially dismal performances at other retailers, particularly their most recent experience at Wet Seal, which demonstrates a severe lack of understanding around the basics of retail strategy.
In considering which directors are better qualified to preserve and increase value, shareholders should seriously question ISS’s recommendation to give 50% board control to a dissident shareholder that owns substantially fewer shares than the Company’s CEO, and has been steadily selling down its position since it first publicly announced its campaign. In addition, shareholders should consider that neither ISS nor any of its analysts have any experience in eCommerce or the Company’s business.
We also question the basis for the analysis supporting ISS’s conclusion about “needed change” in proprietary brands, product mix and programming. In fact, revenue from ValueVision’s more than 20 proprietary brands grew 67% in the last two fiscal years, and now represents approximately 25% of our product mix in fiscal 2013.
The ISS report raises questions as to how sharehholders can be expected to rely on an ISS recommendation that, in its very first “Key Takeaway,” materially overstates Clinton’s share ownership.
For the record, as noted in many of Clinton’s and ValueVision’s filings, letters and press releases, Clinton does not, and has never, owned 10% of ValueVision’s shares. This is either an egregious mistake by ISS, or an indication that Clinton is still working in concert with Cannell Capital, which would be a violation of the SEC disclosure rules.
We note that Cannell Capital, which had previously formed a 13-D group with Clinton, filed a letter criticizing the Company earlier this week. Shareholders should question whether ISS is making its recommendation based on flawed facts or on information that has not been disclosed to other shareholders.
The election of Clinton’s nominees could disrupt the progress to date of creating greater value for shareholders, derailing the Company’s progress and momentum. We urge ValueVision shareholders to support the Board that is committed to enhancing value for all shareholders.
For example, ValueVision’s Board and management team have transformed the Company over the past five years through the continued successful execution of ValueVision’s strategy, and are continuing to deliver positive results.
Significantly diversified and broadened its merchandise offerings;
Reduced the average selling price to enable customer growth;
Increased customer count from approximately 754,000 in 2008 to 1.4 million customers now;
Increased net sales by 6% and net units shipped by 28% in the first quarter of 2014 alone;
Reduced the cost per home over the last six years from $1.72 to $1.12;
Dramatically improved the customer experience and satisfaction levels;
Streamlined company-wide operations;
Enhanced fulfillment and customer service capabilities;
Improved the quality of the Company’s TV distribution footprint while significantly reducing the cost; and
Enhanced the stability and flexibility of ValueVision’s balance sheet, resulting in stronger financial performance.
Even ISS acknowledges that ValueVision’s record of delivering shareholder value is superior. Listen to what the independent experts are saying about ValueVision. All sell-side analysts that cover ValueVision have a BUY rating post Q1 2014 earnings1:
“Improvements in recent quarters appear to be driven by greater depth of SKUs in each category, thereby reducing concentration risk in product offerings. Broader product assortments are driving customer growth — YOY customer growth has trended from 7% in Q1, 22% in Q2, 20% in Q3, and 30% in Q4 to 19% in Q1. A bigger customer base increases the likelihood of sustainable long-term revenue growth, which is the driver of VVTV’s decision to lower ASPs by emphasizing products that appeal to a larger audience.” – Dougherty & Company on May 22, 2014
“The company will leverage the sales growth more in F2015 and experience very high earnings growth. We think the long-term investment thesis is intact which is that the company can grow revenue by reducing ASP, increasing transactions and the higher revenue will leverage largely fixed operating expenses leading to strong earnings growth. With ample price appreciation potential to our new price target, we are maintaining our BUY rating.” – Feltl and Company on May 22, 2014
“VVTV reported solid Q1 results… As evidence that the strategy to broaden the merchandise assortment and lower average prices is working, new customer acquisition was up 19% in Q1, paving the way for strong revenue growth in future quarters. ShopHQ has several brands and partnerships slated to launch this year: notably, a partnership featuring Shark Tank’s Mark Cuban that is being worked on for the summer.” – Craig-Hallum on May 22, 2014
“Mobile continues to grow — underscoring this mega trend in consumer behavior. We note that eCommerce sales in total were about 45% of the company’s total revenues, of which 32% (or 14% of the company’s total revenues) were conducted via a mobile device. Mobile strategies put into place last year are paying off in driving penetration via mobile. For this year, the company intends to continue these enhancements aimed at driving customer engagement and purchase frequency.” – Piper Jaffray on May 21.
The Clinton Group pooh-poohed all that.
“I read with interest ValueVision’s press release today in which the Company expresses its view that ISS does not understand the Company or its industry,” Taxin said.
“While shooting the messenger is always tempting, it is completely unwarranted in this instance. The ISS lead analyst, a CFA charter holder and former media and advertising research analyst for Lazard and Citibank, is eminently qualified to understand, and did understand, the issues in this important proxy contest.”