Demarco responded to the most recent letter on February 4, saying it was “profoundly troubling” to him. He expressed shock at Miller’s continued “willful ignorance” of what constitutes a conflict between members of the board, saying their objective to increase shareholder value is to the benefit of all shareholders, and that their proposals would give all shareholders a greater say in how the company is governed. He also dismissed the insinuation that Stadium’s proposals reflected a short-term agenda, pointing out that Stadium has been a shareholder of Big 5 Sporting Goods Corporation (NASDAQ:BGFV)’s for nine years.
Demarco added that in its nearly two decades of operations, and with investments in hundreds of companies, Stadium has only publicly aired grievances with a company three times, one of which we reported on last year, involving Insperity Inc (NYSE:NSP). Demarco added that when he took his board seat at Big 5 in 2011, it was the first seat Stadium had ever taken on a company’s board, owing to how concerned they were with the company’s governance, which has not changed in the more than three years since.
Interestingly, Miller noted in his letter that not one other shareholder followed Stadium’s lead after Stadium publicly called on other shareholders to file the same Rule 14a-8 stockholder proposal they did in December, which would have bypassed the potentially long reform process involving their proposals, one of which was to declassify the board. It certainly makes one wonder what the other shareholders are thinking, as Stadium certainly seems to have a strong case for their position.
Big 5 Sporting Goods Corporation (NASDAQ:BGFV) has returned negative value to shareholders over five and ten year periods, and is down 15.65% year-to-date, with their most recent quarterly results coming in below expectations. In the midst of the lengthy, poor results are clear conflicts on their board, including entrenched, hand-picked directors with limited or no ownership of the company, who benefit from the insulation of the current lack of accountability of the board’s directors, as well as a director who is partner to a law firm that received substantial legal fees from Big 5.
Big 5 Sporting Goods Corporation (NASDAQ:BGFV) has no other major shareholders with a minimum 5% stake in the company. Several of the funds we track do have smaller positions in Big 5 however, including Brett Hendrickson’s Nokomis Capital with 486,061 shares, Mario Gabelli’s GAMCO Investors with 395,000 shares, and Michael Price’s MFP Investors with 157,138 shares (all figures of September 30).
The results of this deepening battle between Stadium Capital and Big 5 will likely have a major impact on the company’s future governance and its prospects for shareholders, and we’ll continue to monitor it closely.
