Exiting With Style
Quite possibly the most popular person at the second annual Main & Wall conference was Marla Schaefer, former co-chairman and co-CEO of Claire’s Stores, Inc., and now a member of David N. Deutch & Co.’s Presidents Council. Certainly she was the person that other retailers appeared most eager to speak with during the informal networking breaks.
CEOs wanted to hear how Marla and her sister, Bonnie, took command of the successful fashion-accessories company built by their father, Rowland. But even more, Main & Wall attendees wanted to know the exit strategy that enabled the Schaefers to walk away from the company with no regrets and a reputation for professionalism that made the $3.1 billion sale of Claire’s the quintessential model of how to exit a company with style. Private-equity firm Apollo Management purchased Claire’s in 2003.
In a panel discussion moderated by David N. Deutsch, conference chair and president of David N. Deutsch & Co., New York City, Schaefer told highlights of their story.
“Our father was a classic one-man-show entrepreneur. He opened stores all over the world through acquisitions and franchise deals, but he didn’t [appreciate] the need for succession planning,” she said. “Six months after Bonnie and I took over, we were saying, ‘Where did he get the energy for all this?’”
To transition the company forward, Schaefer had to identify and fortify opportunities for improvement within the corporate structure and she had to convince her father of the value of succession planning. The former was much easier than the latter.
“No one wants to buy a business that doesn’t have the appropriate infrastructure and succession plans in place,” Schaefer noted. “We had a wonderful technology department, but we needed another platform. We actually purchased and implemented a new POS system because the business had to keep going as usual. Also, we had great [expansion] opportunities in the Middle East, Russia and Poland, and our joint venture in Japan needed attention.”
Continuing to invest in the company, grow the business and plan for the future were necessary steps in the overall exit strategy. As Schaefer explained, “The things we were putting in place to make the business better were positioning us to sell.”
However, the hardest sale was convincing her father it was time for a succession plan. The way she managed to sway him was by appealing to what mattered most to him about the business—the welfare of his employees.
“He was fiercely loyal to his employees,” Schaefer continued, “and helping him to understand that the employees needed the company to have a succession plan was what finally got his attention.”
Her parting advice to CEOs contemplating a sale was to communicate with employees as early as possible about their intent to sell the company. “If you are mindful of the loyal people in your company and you keep them informed at every juncture along the way, it will hold you in good stead,” she advised.
The devil in the details: Not every corporate sale goes as smoothly or as successfully as the Claire’s deal. Main & Wall panelists discussed other aspects of exit deals that merit consideration.
For instance, Matthew R. Kahn, managing director of GB Merchant Partners, an affiliate of Main & Wall’s platinum sponsor Gordon Bros. Group, pointed out that retail portfolios that are part company-owned and part franchisee-owned have unique considerations.
“We exited a company that was half-owned and half-franchised and, because the company was bought by its largest competitor,” he explained, “there was franchisee overlap in several markets that had to be addressed. It’s best to address that kind of situation early.”
Similarly, it is important for any existing legal obligations to be reviewed as early in the deal-making process as possible. Michelle Rutta, partner, Dewey & LeBoeuf, an international law firm headquartered in New York City and a Main & Wall sponsor, said, “One of the first things a potential buyer will ask is, ‘Are you suing anyone or being sued by anyone?’ It is best to address these disputes ahead of time.”
Rutta also recommended that business owners should review all contracts prior to negotiating a sale. In particular, review the assignment or non-assignment clauses in third-party contracts, such as real estate leases. “You need to tidy all your records and make sure the financial statements are understandable; ideally they should be prepared by an outside auditor,” she advised.
One of the most critical aspects of a potential sale is the letter of intent (LOI), which is created when a serious buyer has been identified and essentially puts into writing a specific outline of what is to be sold and how the deal-making process should evolve.
In addition to the basic terms of a typical LOI, such as the sale price and form of transaction, Rutta suggested including confidentiality provisions and specific guidelines for access to records and how due diligence should be performed.
“If you want to add bite to the LOI, you might include an expense-reimbursement clause,” she noted.
Finally, the LOI should establish a short period of time during which the parties agree to negotiate exclusively with one another, or as Kahn defined it, “The LOI gives clarity of commitment to the process.”
Wal-Mart to sell earth-friendly CDs
SANTA MONICA, Calif. As part of Wal-Mart’s “Earth Month” the company is selling more than 20 Universal Music Group titles that come with special earth-friendly inserts. The inserts are made with special seed paper and, according to the companies, can actually bloom into wildflowers.
The inserts, in addition to being good for the environment, also offer consumers three free digital downloads from Universal Music. Universal also said that a number of its new CDs will be packaged in third-party certified, renewable recycled board and recyclable paper.
ODP urges rejection of Levan nominees
DELRAY BEACH, Fla. Office Depot is continuing to urge its shareholders to reject dissident nominees and elect the company’s nominees to its board of directors at its annual shareholders meeting this April.
In a proxy statement sent to investors, Office Depot said that Alan Levan’s proposed nominees would do little to help improve shareholder value. According to the statement, Levan’s company, Levitt Corp. has seen its share price fall about 93% over the past three years and that its subsidiary, Levitt and Sons, is in bankruptcy. Office Depot also noted that BankAtlantic, of which Levan is chairman and ceo and one of his nominees, is president of real estate, construction and development, share price has dropped approximately 75% over the past three years.
Office Depot also cited news reports that commented on Levan’s failing business ventures, as well as others that said that his nominees are not qualified to serve on Office Depot’s board of directors.
The company pointed out nominee Mark Begelman’s experience with Mars Music, a company he founded in 1997 that went bankrupt in 2002. According to Office Depot, many news reports attributed this failure to a flawed business strategy.
According to Office Depot, when Levan’s other nominee, Martin Hanaka served as chairman of Sports Authority from 1998 to 2003, the company saw its price fall by about 13%.
Office Depot stressed that its directors best understand the company and are well-suited to help the company grow.
“We strongly believe that removing two of the most experienced retailing executives from our board, including our current ceo who is driving the implementation of our strategic turnaround plan, would be highly disruptive, could delay the implementation of internal and external initiatives and could damage prospects for a successful turnaround,” Office Depot said in the proxy statement.