Regis: Activist Investor’s Plan Would Put Co. at Risk

In a letter to shareholders, Regis discussed its recent proxy battle with activist investor Starboard-stating that the investor is "advocating uninformed and irresponsible cost-cutting that puts the Regis franchise at risk."

The exchange of blows between Regis Corporation and an activist investor continued Wednesday when leaders of the Edina-based salon operator sent a letter to company shareholders, urging them to vote for the company's recommended board nominees.

The letter was sent ahead of the annual meeting on October 27, when shareholders will have the opportunity to vote in support of a plan backed by the company's current leadership or a proposal from Starboard Value LP, a New York-based hedge fund that owns roughly 5.2 percent of Regis' stock. Starboard in August asked Regis to cut at least $100 million in expenses and sell its non-core businesses.

Earlier this month, Regis announced a series of planned changes, including the appointment of Randy 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.

Last week, Starboard sharply criticized Regis' plans, saying they're insufficient. The activist investor sent a letter to Regis shareholders, asking them to support the election of its three nominees to the company's board, including Starboard CEO Jeffrey Smith.

In Regis' Wednesday letter, the company described Starboard's statements as “false or misleading,” adding that the investor's “strategic and operating recommendations for Regis are flawed and that Starboard seeks disproportionate representation on Regis' board without a critically-needed understanding of our business or our plan to create shareholder value.”

The company said it has a “strong track record of profitable growth” and it pointed out that it has reduced its debt by more than $490 million in less than three years. Regis also said it has “attempted in good faith to reach a settlement with Starboard,” including a possible board seat, but the investor “decided to pursue a proxy fight instead.”

Regis said that in its discussions with Starboard, the investor initially demanded that Regis publicly commit to $150 million in cost cuts, but it later reduced that figure to $100 million and then $80 million.

“We believe Starboard is advocating uninformed and irresponsible cost-cutting that puts the franchise at risk,” Regis wrote. “In contrast to Regis' plan, which is based on a bottom-up analysis of the particular expenses that can be reduced without harming Regis' long-term prospects, Starboard's cost-cutting targets seem to be arbitrary and lack a supporting plan to achieve these targets.”

Regis' complete letter is available here.

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. Its 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.