Build a Better Bear? Cannell Capital Pushes for Build-a-Bear Buyback, Board Replacement - CorpGov
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Build a Better Bear? Cannell Capital Pushes for Build-a-Bear Buyback, Board Replacement
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Build a Better Bear? Cannell Capital Pushes for Build-a-Bear Buyback, Board Replacement

  • CorpGov obtained a June 11 letter from Carlo Cannell’s Cannell Capital LLC to Build-a-Bear Workshop, Inc. (Nasdaq: BBW)
  • Letter urges BBW to conduct share buyback with cash on balance sheet, dividend reduction, modest additional leverage and sale-leaseback
  • Cannell sees EPS doubling if BBW brings leverage to 1.5x and executes buyback
  • Letter gives senior management an “A-” for execution but board a “D”
  • Mr. Cannell said entire board should be replaced in an exclusive interview with CorpGov
  • Letter indicates Cannell previously shared its “Principles for Boards of Directors” with BBW in April
  • Principles include right-sized boards chosen on merit not demographics, efficient compensation, and shareholder-friendly board arrangements

By John Jannarone

Cannell Capital LLC, owner of a 3.1% stake in Build-a-Bear Workshop, Inc. (Nasdaq: BBW), has urged the company to replace its entire board of directors and execute a share buyback that could more-than double earnings per share, according to a letter obtained by CorpGov and an exclusive interview with fund founder Carlo Cannell.

The letter, dated June 11, was sent to Craig Leavitt, Chairman of the Board and cites a prior communication between Cannell Capital and the maker of highly-popular plush animals which buyers get to customize. On April 5, Cannell had sent a memo outlining “Principles for Boards of Directors” and Mr. Leavitt replied to Cannell saying he would share and review with fellow directors, according to the newer Cannell letter.

The new letter goes on to say that Mr. Leavitt never shared the outcome of that review and that the Board deserves a “D” grade. “The [Board of Directors] doesn’t even know that they do not know,” the letter says. In an interview with CorpGov, Mr. Cannell said “the whole board should be replaced” though he hasn’t yet gone as far as to suggest his own candidates. (The company just had its annual meeting a few weeks ago).

The letter also suggests a buyback of “half” of the outstanding BBW shares which would put the company at 1.5x leverage, funded by the following:

  • A sale-leaseback of the company’s distribution center in Ohio
  • Additional borrowings resulting in a “modest” rate of interest
  • Curtailing the dividend
  • Cash on balance sheet

However, Cannell emphasizes support for senior management, giving them an “A-” for “execution and strategy.” In the interview, Mr. Cannell said that while operations are strong, there’s an opportunity to improve earnings in the same way a private-equity owner might if it acquired BBW.

Asked about the letter, a spokesman referred CorpGov to a recent earnings transcript, which highlights that the company returned over $12 million to shareholders in the first quarter through both dividends and share repurchases. Over the last 10 quarters, the company has returned over $100 million to shareholders, the transcript states. The spokesman declined to comment on its communications with Cannell Capital.

Cannell Capital’s prior communication in April outlined several important principles boards need to follow, some of which reflect shortcomings at BBW, Mr. Cannell said:

  • Select directors based on merit rather than “who they know, demographic criteria or other factors ungermane to increasing shareholder returns”
  • Boards should be appropriately sized, usually with a total of five with the goal of reducing Nasdaq-mandated demographic requirements, cut expenses and streamlining decision making (BBW has six directors plus one director emeritus)
  • Align incentives with efficient compensation, with directors compensated based on metrics that benefit all owners, such as earnings per share
  • Choose shareholder-friendly structures that don’t include arrangements such as staggered elections, overly-long tenures, and restrictions on special meetings

Contact:

CorpGov

www.CorpGov.com

Editor@CorpGov.com

 

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