Dissident Destination Maternity stockholders hit back at ISS report advising against their Board nominees

By

Robin Driver

Published
May 12, 2018

As the date of Destination Maternity Corporation’s annual meeting approaches and the fight for Board seats intensifies, dissident stockholders led by George Miller and Peter O’Malley (known as the Miller Group) have contested Institutional Stockholder Services’ (ISS) recommendation to vote against their nominees.

 
Miller and O’Malley made a filing with the United States Securities and Exchange Commission (SEC) on Friday in which they stressed that the ISS report agreed with them that “the chronic underperformance at Destination Maternity is emblematic of a company not living up to its potential, and that change at the board level is warranted”,  claiming that its subsequent recommendation to vote against their nominees was “counterintuitive”.
 
The Miller Group has been pushing to see more women on Destination Maternity’s Board and reiterated these demands in Friday’s statement, arguing that “the absence of female board representation and leadership is in direct misalignment with the strategic goals, end customers and product selection” of the company. The filing went on to refute earlier claims from Destination Maternity’s current Board that the dissident stockholders’ majority female slate of directors lacks experience.

The last two weeks have seen a flurry of SEC filings related to the company, as opposing factions trade blows over Board nominations in the run up to the annual meeting of stockholders planned for the end of the month.
 
ISS’ remarks followed a report published by fellow proxy advisory firm Glass Lewis on Thursday, which advised the company’s stockholders to vote against the Miller Group’s nominees, arguing that Miller’s “pattern of practice indicates a principal focus on control, rather than the expansion and protection of shareholder value.”
 
The findings of both reports were hastily relayed to stockholders via SEC filings made by Destination Maternity’s incumbent Board, comprised of Chairman Barry Erdos, Destination’s interim CEO Melissa Payner-Gregor, Peter Longo and Pierre-André Mestre.
 
The current Board also sent a letter to the company’s stockholders on Friday, May 4, urging them to vote against the Miller Group’s slate of nominees, citing a lack of experience and questionable motives.
 
Miller and O’Malley retorted with a letter of their own on May 10, in which they stated that the Destination Maternity Board “needs a complete overhaul to improve the Company and bring an end to the dramatic destruction of stockholder value that the current Board has presided over,” accusing incumbent Board members of relying on “tired, chauvinist tropes to reject change.”
 
At the heart of the dispute is some stockholders’ discontent with Destination Maternity’s financial performance, which has suffered most recently from the company's severance from Kohl's, and the apparent ineffectiveness of the current Board’s turnaround plan. The company did, however, manage to reduce losses in 2017 thanks to an e-commerce-driven boost in fourth quarter sales.

Also at issue is the involvement of French maternity and kidswear group Orchestra-Prémaman, which holds a 13.8% stake in Destination Maternity, in the company's governance. The two companies attempted a merger which was subsequently called off for regulatory reasons in July 2017, and current Destination Board member Pierre-André Mestre, who holds around 13.1% of the company's shares according to the Miller Group, is also Orchestra's chairman, a fact which dissident stockholders believe creates a conflict of interest. 

In the Miller Group's May 10 letter, Miller and O'Malley also accused Destination's incumbent Board of selling seats to the French group in order to secure its support after it criticized the performance of the company's directors in a letter sent to stockholders in October of last year. 
 
Destination Maternity’s annual meeting of stockholders will take place at the company’s Moorestown, New Jersey headquarters on Wednesday, May 23, 2018.