Sandell Asset Management, founded and managed by Thomas Sandell, sent a letter yesterday to the Board of Directors of Ethan Allen Interiors Inc. (NYSE:ETH), stating its discontent regarding the company stalling to engage in discussions with the fund. Sandell previously expressed its intentions to nominate a slate of director candidates to stand for election at Ethan Allen’s Annual Meeting scheduled for November 24, but the company is not planning to discuss the issue with the investment firm until “later in September after Labor Day”. It’s worth mentioning that Sandell Asset Management disclosed owning 1.57 million shares of Ethan Allen Interiors earlier this month, which represent 5.5% of the company’s outstanding stock.
Sandell Asset Management is an activist hedge fund founded by Thomas E. Sandell in 1998. The New York-based alternative asset management firm specializes in global corporate event-driven, multi-strategy investing and focuses on equity special situations and credit opportunities. Tom Sandell, the CEO of Sandell Asset Management, previously acted as a senior managing director at Bear Stearns’ Risk Arbitrage department, was the head of Equity Research at Group Delphi in Paris, and served as a securities analyst at Atlantic Finance in Paris prior to launching his own firm. According to the firm’s most recent 13F filing with the SEC, Sandell Asset Management oversees a public equity portfolio with a market value of $942.48 million as of June 30.
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Ethan Allen Interiors Inc. (NYSE:ETH) is an interior design company that manufactures and markets home furnishings in North America, Europe, Asia, and the Middle East. The company provides complementary interior design service and sells a wide range of furniture products and decorative accessories via its website and a network of roughly 300 Design Centers worldwide. The shares of Ethan Allen have lost slightly over 4% year-to-date, but they have boarded an unstable upward trend since the beginning of May. Even so, Thomas Sandell and his team recently expressed their belief that the stock is highly undervalued. Chuck Royce’s Royce & Associates and Crispin Odey’s Odey Asset Management Group like feel the same way, being the largest equity holders of Ethan Allen Interiors Inc. (NYSE:ETH) in our database, owning 3.07 million shares and 1.80 million shares, respectively.
On August 14, Sandell Asset Management sent a letter to Farooq Kathwari, the Chairman and CEO of Ethan Allen, indicating that the shares of the company were trading at a significant discount to its intrinsic value at the time. More specifically, the investment management firm asserted that the company’s intrinsic value totaled $41 per share, which yields an upside of over 37% from the current price of $29.79 per share. Sandell suggested that the real estate assets of Ethan Allen might be worth roughly $450 million, which corresponds to $16 per share. Therefore, the company is believed to have the potential to enhance shareholder value by engaging in “a series of sale-leaseback transactions” or by creating a publicly-traded real estate investment trust. Additionally, the alternative asset management firm indicated that Ethan Allen has greatly underperformed its publicly-traded peers over the last decade or so. Let’s not forget to mention that there are several private equity professionals who have already expressed their interest in acquiring Ethan Allen, so we should expect major changes in the company’s future direction by the end of the year, after its Annual Meeting in November.
Let’s now take a quick look at some financial figures disclosed in the company’s recently-announced financial report for the fourth quarter and 2015 fiscal year that ended June 30, 2015. Ethan Allen Interiors posted consolidated net sales of $193.6 million for the quarter, marking a decrease of 2.6% year-over-year. The company’s net income was $12.7 million or $0.44 per diluted share, compared to $17.1 million or $0.58 reported in the same quarter a year ago. The total debt on the company’s balance sheet amounted to $77.6 million, decreasing by $53.3 million year-over-year, which indicates that the management of Ethan Allen was at least successful in improving the company’s financial health, if not its bottom line results.
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