NEW YORK ( The Deal) -- Joining forces with a large governance-focused public pension fund can add "gravitas" to an activist insurgency campaign, as relative newbie Legion Partners Asset Management learned when it teamed up with the California State Teachers' Retirement System to force changes at Perry Ellis International (PERY).
A cursory look at the year-long campaign suggests that the duo actually lost -- since last week they canceled a short-slate proxy contest to install three dissident director candidates to the apparel company's board.
But under the pressure, Perry Ellis took major steps to improve its governance and board at the same time that its stock price shot up from $17.50 in July when Legion launched the public portion of its campaign to its most recent price of $25.10. Legion and CalSTRS acquired their stake between May and July 2014, at prices ranging from $14.47 to $17.56 a share and, according to a person familiar with the matter, the fund began engaging with the company in the spring last year.
A crucial step -- likely the one that convinced Legion to end its contest -- was the installment of Bruce Klatsky and Michael Rayden as independent directors. Klatsky, who at PVH Corp. (PVH) had overseen the acquisition of Calvin Klein, is considered by people familiar with the contest as exactly the kind of top-rated director whom proxy advisers are likely to endorse over a dissident director candidate.
In addition, the structure now includes five independent directors on a board of seven, a new lead independent director with less than a one year tenure and a variety of other governance improvements. Another independent director, Jane DeFlorio, an investment banker, was appointed in December. A nonbinding CalSTRS proposal to de-stagger Perry Ellis' board is also likely to be approved by shareholders at the annual meeting in July -- a move that could set the stage for a change-of-control proxy fight next year if more changes aren't forthcoming.