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The 5 Dumbest Things on Wall Street This Week: Aug. 24

1. Wet Seal's Poison Pill

As if Wet Seal (WTSLA) investors haven't swallowed enough bad decisions from the company's management, now they are being forced to gulp down a poison pill.

The struggling women's clothes retailer adopted a shareholder rights plan -- aka poison pill strategy -- this week to block a suitor from acquiring 10% or more of the company. The pill, which expires in June 2013, essentially dilutes the snot out of the stock should somebody try and seize control of the company.

The board, which has also engaged a pair of investment banks "to pursue strategic options," put the plan in place as a response to the Clinton Group, which owns 5.1% of Wet Seal stock and has been pushing management to sell the company.

"We took this action to insure the board has sufficient time to consider any option," said Wet Seal Chairman Harold Kahn on a conference call with analysts. Wet Seal posted a second-quarter net loss of $12.4 million Tuesday, compared with net income of $2.2 million last year. The company reported an 11% decline in second-quarter same-store sales. Wet Seal shares fell more than 10% on Wednesday and are down almost 40% in the past year.

Sufficient time? Give us a break Harold. You fired CEO Susan McGalla just a few weeks ago after she presided over 11 straight months of declining same-store sales. That's plenty of time in our book. Why not give somebody else a turn to run the show if they are willing to bid for it? All your shareholder rights plan is doing -- aside from taking away shareholder rights that is -- is giving more time for investors to get out of the stock and less incentive for others to get in.

Well, to be perfectly thorough, there are some other incentives involved with the plan as well. According to the company's recent 8-K filing, Wet Seal is putting aside $1.2 million to retain senior leadership during the transition. Or in other words, despite the company's cruddy performance, these folks are getting a bonus to stick around.

Same goes for Kahn himself. He was rewarded with a grant of $500,000 in restricted stock in lieu of the $75,000 in cash he usually pockets as chairman. Meanwhile, members of the company's Strategic Oversight Committee will each get a $90,000 grant of restricted stock for their troubles.

Or, more precisely, for Wet Seal's troubles.

-- Written by Gregg Greenberg in New York.
Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.
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