Regis, Activist Investor Trade Harsh Words

Shortly after Regis announced a series of strategic changes, the company and one of its largest shareholders-which believes the changes fall short-are exchanging harsh criticisms ahead of an upcoming shareholder meeting.

One of Edina-based Regis Corporation's largest shareholders says that the company's recently announced plans to cut costs don't go far enough-an accusation against which Regis has quickly defended itself.

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

Earlier this week, Regis announced a series of planned changes, including the appointment of Randy L. Pearce-who is currently president-to serve as CEO starting in February.

The company also said it expects to lower expenses by $40 million to $50 million over the next two fiscal years to improve earnings. It plans to lower salon payroll costs by reducing turnover and enhancing leveraged pay plans, renegotiating contracts, and increasing technology use to reduce travel and printing expenses.

But those strategies fell short of Starboard's expectations, and the fund on Wednesday sent a sharply worded letter to Regis shareholders, asking them to support the election of three nominees to the company's board, including Starboard CEO Jeffrey Smith. Regis' annual shareholder meeting will be held on October 27.

Starboard claims that Regis made its recently announced governance and strategic changes in response to the fund's earlier call for change, but the “reactionary changes do not go far enough to address the significant issues facing the company.” The fund told shareholders not to be “influenced by the illusion of change.”

“When the pressure is off, what will keep the board from returning to its past practices of complacent oversight and weak governance?” Starboard wrote in the letter.

Regis responded by saying that it is focused on profitable growth and shareholder value through its “carefully planned and appropriate strategy of revenue initiatives, cost cuts, governance changes, and review of alternatives for non-core assets.”

The company said that Starboard's letter is “misleading and contains numerous errors,” and the company looks forward to “engaging with shareholders to explain our plans for enhancing value now without sacrificing the long-term viability of the Regis franchise.”

Pearce wrote in a Tuesday letter to Regis employees that the company has “worked hard to reach a settlement with Starboard” but “despite all of our good efforts, Starboard has pressed ahead with its proxy contest.”

“While some of this news and chatter can be distracting, rest assured, it is business as usual at Regis,” Pearce continued.

Regis, one of Minnesota's 25 largest public companies, has struggled and trimmed expenses in recent years as consumers reduced the frequency of their salon visits amid the recession. Last fall, the company said it was exploring strategic alternatives, but in December, Regis announced that it would continue with its existing business plan and remain an independent public company.

Regis' net income dropped more than 79 percent in the fiscal year that ended in June 2011, and it reported a net loss totaling $8.9 million. Revenue, meanwhile, fell about 1.4 percent to $2.32 billion during the period-an improvement from a 3 percent drop last year.

The company operates more than 12,700 salons, cosmetology education centers, and hair restoration centers worldwide-including franchised locations. Those locations operate under numerous concepts, including-in addition to its namesake salons-Supercuts, MasterCuts, Cost Cutters, and Hair Club for Men and Women.


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