Advisory Firm Sides with Activist Investor; Regis Protests

Institutional Shareholder Services has recommended that Regis shareholders vote in favor of Starboard Value's board nominees-but Regis says "the firm reached the wrong conclusion," and "this is not the time to disrupt the execution of the changes that are under way at Regis."

With about a week left before Regis Corporation's annual shareholder meeting, a shareholder advisory firm has recommended that the Edina-based company's investors side with an activist shareholder in an ongoing proxy battle.

But Regis officials quickly fired back, issuing a statement urging shareholders to vote for the company's board recommendations, which include current CEO Paul Finkelstein and six independent nominees.

Starboard Value LP, a New York-based hedge fund that owns roughly 5.2 percent of Regis' stock, in August asked Regis to cut at least $100 million in expenses, sell its non-core businesses, and elect three new board members.

Then, earlier this month, Regis announced planned changes, including the appointment of current President Randy Pearce as CEO in February and a $40 million to $50 million expense reduction over the next two fiscal years.

Starboard on Tuesday announced that Institutional Shareholder Services (ISS), an independent proxy voting advisory firm, has recommended that Regis shareholders vote to elect Starboard's three board nominees-which include Starboard CEO Jeffrey Smith.

ISS found that Starboard offered evidence of historical underperformance, poor capital allocation decisions, and other problems at Regis, according to a news release from Starboard. ISS also said Starboard's board nominees have the proper experience to “presumably help reverse the negative trends in shareholder value going forward,” according to Starboard.

Regis-which wrote a letter last week to its shareholders, stating that Starboard is “advocating uninformed and irresponsible cost-cutting that puts the Regis franchise at risk”-said it is “disappointed in ISS' recommendation” and believes the firm “reached the wrong conclusion.”

Regis said it has attempted to reach a settlement with Starboard, including a board seat, but given the investor's 5.2 percent stake, having more than one Starboard-affiliated director would constitute disproportionate representation.

“We believe that Regis' well-balanced board, with its diverse experience and senior leadership critical to our business, is extremely well-positioned to help Regis succeed in achieving long-term growth . . . This is not the time to disrupt the execution of the changes that are underway at Regis,” the company wrote in a news release.

Regis added that Glass Lewis & Company, another independent proxy voting advisory firm, supported Regis' settlement proposal, which was rejected.

Regis operates more than 12,700 salons, cosmetology education centers, and hair restoration centers worldwide and is one of Minnesota's 25-largest public companies.

Finkelstein, current CEO of Regis, discussed his company's past transformations and its future plans at Twin Cities Business' Minnesota Business Hall of Fame Awards earlier this year.


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