The stock of
has been trading awfully cheap of late. Now, an activist shareholder is publicly wondering whether the entire Dayton, Ohio-based department store chain should just be sold off.
Securities and Exchange Commission
filing on Monday, investor David Nierenberg, general partner of Camas, Wash., investment partnership
D3 Family Fund
, disclosed that he had purchased 5.3% of the retailer's stock during the past two months, and was hoping to persuade the department store's board either to replace its management or to sell it "to a new owner who can manage it better."
The filing spotlights shareholder discontent at Elder-Beerman, a company that has seen its stock price fall to as low as 4 1/8 on Aug. 5 from 29 3/8 in May 1998. (It was trading at 6 1/8, up 1/4, at midday Tuesday.) The company was profiled in early July in
Stock Mart column, when it was trading at 7 11/16.
In an interview Monday, Nierenberg complained that the company has done a bad job of investor relations by missing analysts' estimates during the past year and has made several marketing and merchandising mistakes, such as mishandling its 1998 acquisition of the West Virginia-based
Stone & Thomas
chain, later converted to Elder-Beerman stores.
"They appear to have confused the customer with the name change," Nierenberg says, "and struck a higher price point than a typical Stone & Thomas customer in West Virginia wants to pay."
Elder-Beerman declined to comment on Nierenberg's filing or his allegations.
Nierenberg, who says he has $30 million under management, notes that he has the support of shareholders representing over 20% of the company's ownership in his campaign. "My goal and hope is by the end of this week, I'll be
representing over 50%," he says. Only 2% of company stock is held by insiders, potentially giving unaffiliated shareholders some leverage in making their wishes known to company management. Nierenberg says he hasn't yet approached the board and is marshalling allies before he does.
Though Nierenberg says he doesn't have experience in investing or in operating retail stores, he does have some experience in getting his way at companies in which he has a stake. In March, he filed a 13D related to his holdings in the electronic design software company
, urging it to expand a share-repurchase program and take other measures that might improve shareholder value. He threatened then to team up with other shareholders to elect a new board if the company was not responsive.
Cadence Design Systems
agreed to acquire OrCAD for $13 per share in cash, a price that Nierenberg says was $5 greater than the cost per share of his stake.
In 1997, after an eight-year legal battle that went all the way to the
, Nierenberg and other investors received a $33.8 million payment from the
Federal Deposit Insurance
to compensate for actions that led to the demise of the
Far West Federal Bank
, of which Nierenberg had been chairman.
But not all of Nierenberg's efforts have been successful.
In June 1997, he filed a 13D expressing dissatisfaction with the management of
Casa Ole Restaurants
, now called
. Since that filing, the company's share price has lost roughly half its value. Nierenberg says he's now supportive of the management despite the fall.
One Elder-Beerman shareholder, who spoke on condition of anonymity, said he had called Nierenberg to express his support. That shareholder said he thought the company was too small to survive on its own and needed either to make an acquisition -- which he wasn't confident the company could execute successfully -- or be purchased by another chain. "On a buyout basis, it's a good double from here," the shareholder says.
Jeff Stein, an analyst at
, agrees that the stock is cheap -- he estimates its underlying value is in the neighborhood of $13 to $15. But that calculation didn't prevent him from downgrading the stock to hold from buy in late July, in anticipation of continued weakness in same-store sales. "Management has not been executing their plan over the past four quarters. They're not meeting expectations," he says. Stein's firm led Elder-Beerman's secondary offering in 1998.
Despite his criticisms of management, Nierenberg says he thinks the company has several factors in its favor, including its private-label credit-card business and its market share in the cities where it operates. "Current management miscues notwithstanding, this is an attractive and valuable company," he says.