The Forzani Group Ltd. mailed to shareholders a letter and accompanying
WHITE proxy. The letter from Chairman John Forzani responds to a
dissident proxy circular issued by the New York hedge fund Crescendo
Partners, which opposes two Forzani nominees for election to the board
of directors at the June 10, 2009 annual meeting.
In the letter, the chairman provides a number of reasons why
shareholders should vote the WHITE proxy for all eight of the company's
nominees, as set out in the Management Proxy Circular available on
SEDAR at www.sedar.com and on the corporate website at
Among other reasons, John Forzani states that the company has a strong
board of directors, good corporate governance, a clear and focused
strategy, and a track record of success. Mr. Forzani adds that
Crescendo has put forward two nominees who bring lesser qualifications,
has justified its campaign with false and misleading statements, and
has shown no regard whatsoever for the strategic importance of Quebec
to the company and its shareholders.
In a separate press release, Crescendo Partners said filed an investor
presentation in connection with its proposal for two new directors to
be elected to the board of The Forzani Group Ltd. The presentation was
filed with Canadian securities regulators.
In its presentation, Crescendo Partners explains its rationale for
seeking the support of shareholders for adding its two nominees to the
Forzani board. The presentation also highlights why Crescendo Partners
believes that the current board of directors of Forzani has failed to
effectively oversee the company, as evidenced by its:
– inability to meet long-term revenue and EBITDA margin targets.
– low return on equity invested in the business.
– subpar performance of company-owned stores.
– accumulation of too many banners.
– failure to crystallize value through a sale in 2007.
For Forzani's part, the complete text of the letter to shareholders is provided below.
May 20, 2009
Dear Fellow Forzani Shareholders:
As you know, our annual meeting will be held on June 10, 2009. This
meeting is vitally important to you as a shareholder. Recently, a New
York hedge fund called Crescendo Partners filed a dissident proxy
circular by which it has nominated two individuals for election as
directors to the Forzani board of directors. Your incumbent board is
unanimous in its recommendation that Forzani shareholders should
disregard Crescendo and its materials and only vote using the WHITE
proxy in favour of Forzani's proposed slate of directors.
In summary, we believe:
– Forzani's highly qualified nominees bring superior experience,
expertise and deep ties to our key franchisee community in Quebec,
compared to the directors Crescendo aims to replace them with;
– Crescendo has misrepresented Forzani's track record and has
sought both to denigrate and take credit for the success of our
– Crescendo's stated intentions, such as they are, reflect a
shallow understanding of our business and would sell Forzani
shareholders short on the value of their investment;
– Crescendo's conduct and misleading statements in pursuit of its
demands for board representation should give shareholders serious
concerns about its qualifications to be stewards of your investment;
– Crescendo's criticisms are unwarranted. Crescendo offers no
strategy and its launch of a proxy contest is disruptive and costly to
you as a shareholder.
I am confident that you will agree with our position after you read this letter.
I urge you to vote the WHITE form of proxy as recommended and set
out in our Management Proxy Circular. The value of your investment is
at stake. Every vote is important and we need your support.
Forzani's Nominees Vs. Crescendo's
Forzani has strong corporate governance, including a robust
director nomination process that is careful, thorough, and aligned with
current Canadian best practice. Electing directors is not a theoretical
exercise. It is about identifying directors who possess the right mix
of skills, expertise and experience to add value to the board's
strategic deliberations. It is about having directors who know enough
about the business to hold management accountable and can help to
create value for shareholders. It is also about identifying people who
represent the best interests of all shareholders.
In this regard, we encourage shareholders to carefully review and
consider the qualifications of the two Forzani nominees that Crescendo
opposes, and to compare them to Crescendo's own nominees.
We'll start with our nominee – and current Forzani director —
Henri Drouin, and his experience in multi-location Canadian national
retailing. For 21 years, ending in 2002, Henri was chairman of hardware
retail giant RONA Inc. of Boucherville, Quebec. This was a period of
exceptional growth for one of Canada's great business success stories.
Moreover, Henri is fluent in English and French, has been successful as
a retail store owner, operator and franchisee in Quebec, and is a
crucial local link between the board and our Quebec franchisees,
approximately 40% of whom are unilingual francophones. This is no small
matter – nearly one-third of Forzani's retail sales come from Quebec.
In contrast, Crescendo has put forward a US retail executive who
has held five jobs in the past 11 years, none of them with companies
having material operations in Quebec or elsewhere in Canada. Two months
ago this executive was appointed CEO of a once famous but now
struggling private toy store business. Immediately before that he spent
a year heading the publicly-traded online retailer Bluefly.com. Perhaps
it wasn't his fault, but while he was in charge the market value of the
shares dropped by approximately 75%.
Now let's have a look at our nominee Donald Gass. Don, who retired
last year as a partner from Deloitte & Touche LLP, is a former
President of the Canadian Institute of Chartered Accountants and holds
the prestigious Fellow Chartered Accountant (FCA) designation. He has
decades of business experience, including personal involvement in
numerous mergers, acquisitions, asset dispositions and restructurings.
Don was selected for his unique expertise, as well as for his ability
to serve as a member of the Audit Committee, ideally filling the gap
that would otherwise have been left on our board with the upcoming
retirement of Bill Grace, also an accounting expert and FCA.
In contrast, Crescendo has nominated a young man who obtained his
MBA in the graduating class of 2005 (a fact that you won't find in
Crescendo's dissident circular). Crescendo touts his experience as an
officer of two privately held “blank cheque” companies; in other words,
companies that typically exist on paper only and which have no
operations. He apparently has no Canadian business background. In 1976,
the year before this Crescendo nominee was born, Donald Gass was made a
partner at Deloitte & Touche.
Forzani's Track Record
Crescendo has misrepresented our company's track record to justify its call for change.
Forzani has executed a well thought out and effective strategy to
become the leader in the Canadian sporting goods sector. We acquired
several banners as a way to become a leading presence in the market and
recently announced a strategic plan to drive further synergies and
maximize profitability across the enterprise over the next five years.
In an interview on Canada's Business News Network (BNN), Eric
Rosenfeld, Managing Member of Crescendo Partners, appeared to take
credit for this strategy. This lacks all credibility and is
demonstrably false. Crescendo first met with us last month, in April
2009. Many of the initiatives that make up this strategy have been
underway for almost two years, during which time we have restructured
and streamlined our executive ranks, collapsed three buying teams into
one, completely retooled our marketing and store operations, brought
our merchandise assortment more in line with that of our successful
franchise business, mapped out a clear and deliberate banner
rationalization program and moved the head of our highly successful
franchise operation to be the President of the company. We strongly
encourage any shareholders who have doubts about the authorship of our
strategy to discuss the point with Bob Sartor, our CEO, or Mike
Lambert, our CFO.
And we haven't just talked a good game, we have shown results. Over
the past three years, our EPS growth has been higher than that for
comparable US sporting goods retailers, including Big 5, Cabela's,
Dick's, Foot Locker, Gander Mountain and Hibbett, as well as Canadian
Tire in Canada. During this same period, our same store sales growth
has averaged higher than that for any of our peers, a result of our
strong execution. Our average EBITDA margin of 8.3% during the past
three years is in line with that of several of the leading industry
players and significantly higher than that for several other players.
The market has taken note of our results. Over the three-year period
prior to Crescendo's filing of its dissident proxy circular, our stock
outperformed that of our peers as well as both the S&P/TSX and
S&P/TSX Retail indices.
Crescendo has also suggested that its interests are more aligned
with yours because it owns 5.1% of Forzani shares while your current
board owns 4%. I can tell you that your board is fully aligned with
Forzani shareholders and that each of our directors complies with both
Forzani's share ownership guidelines and the standards for director
ownership suggested by the Canadian Coalition for Good Governance. More
than that, the investment made by Forzani directors belongs to each of
us personally, as opposed to an investment fund. As for me, not only do
I have much of my net worth invested in Forzani, my name is on the
door. You can be sure I want what is best for the company, its
employees, franchisees, suppliers, customers, communities and, above
all, my fellow shareholders.
Leaving aside the qualifications of its nominees and its other
statements, Crescendo has offered no compelling rationale for why
Forzani should grant it board representation. In its meetings with
management, Crescendo representatives displayed a working but
superficial knowledge of our business and never offered any specific
recommendations, even when asked to do so. Following Forzani's Investor
Day presentation, Mr. Rosenfeld complimented Forzani CEO Bob Sartor on
the company's strategy.
Crescendo Has Made Numerous False and Misleading Statements
I don't like to use a lot of football analogies in business, but I
was an offensive lineman. You line up opposite another man and
whichever one of you is faster, stronger or smarter wins. The job is
really quite simple, and there is some honour in it. There is no honour
in the way Crescendo has played this game so far.
To date, in its proxy circular and media interviews, Crescendo has
made a number of false and misleading statements. We believe this is
too important a matter to let those statements stand, so permit me to
set the record straight:
Crescendo's Statements(1) The Facts
"Over the course of the past two This is not true. Crescendo's approach
months Crescendo has made an effort has never been amicable. In its first
to reach an amicable resolution for meeting with Forzani management,
the election or appointment of Crescendo said it wanted three seats
Crescendo nominees to the Board of on the board and in its first meeting
Directors." by telephone with our lead director Al
Bellstedt, and me, Crescendo
threatened a proxy fight if it was
"Crescendo's request for an This is not true. Crescendo requested
in-person meeting with Forzani's that lead director Al Bellstedt and I
Chairman and lead independent travel to New York on three days notice
director was declined." Al and I were each traveling at the
time and could not coordinate our
schedules on such short notice.
Instead, we offered a meeting in
person the following week. Crescendo
declined because Mr. Rosenfeld would
be in Europe at that time, so we met
by conference call instead.
"Forzani rejected the concept of any This is not true. In response to its
Crescendo nominees serving on the demands, Forzani told Crescendo it
Board of Directors irrespective of would consider its request and asked
the Company having an open board Crescendo to provide the names of its
position to fill." proposed candidates, the names of any
other Forzani shareholders who
supported Crescendo's demands, and to
share with us any strategic suggestions
or proposals they might wish the board
to consider. Crescendo refused to
answer these questions and did not
reveal the identity of its nominees
until filing its dissident circular.
Crescendo did, however, offer to
provide references Forzani could speak
with about Crescendo. We accepted this
offer and spoke to a number of
individuals who currently sit (or
previously sat) on public company
boards with Crescendo representatives.
We also spoke to a number of other
people not suggested to us by Crescendo
who had also had experience with
Crescendo representatives. In no case
did any of these individuals identify
differentiating value provided by
Crescendo as compared to other
I expect many of our shareholders
would have been disappointed in our
board if we had granted any seats to
anyone, sight unseen and without a
plan of any kind.
"Crescendo is convinced that This is not true, even though Crescendo
Forzani's current board of directors may be "convinced" of it. As Forzani
missed an exceptional opportunity to disclosed during that period, the
facilitate the sale of the Company company received a number of inquiries
in the spring/summer of 2007." regarding a possible acquisition
of the company. In response to these
inquiries, the Board formed an
independent committee, hired financial
advisors and legal counsel, and pursued
negotiations with two highly qualified
bidders. In the end, despite Forzani's
efforts to assist in securing purchase
financing, neither party could obtain
the financing necessary to make a
This was the Summer of 2007, at the
onset of a global credit crisis that
has crippled financial markets. It is
unfair and entirely self-serving for
Crescendo to suggest the Forzani board
"missed an opportunity".
Vote the White Proxy
Forzani has a strong board of directors, good corporate governance,
a clear and focused strategy, and a track record of success. Crescendo
has put forward two nominees who bring lesser qualifications, justified
its campaign with false and misleading statements, and has shown no
regard whatsoever for the strategic importance of Quebec to Forzani and
I hope, after you have read this letter and considered the issues
addressed in this letter, that you will vote the WHITE proxy and elect
all eight of Forzani's nominees.
DO NOT let Crescendo succeed with its disruptive actions. Vote your WHITE proxy today.
John Forzani, Chairman
The Forzani Group and its board are advised by Greenhill & Co.,
as independent financial advisors, Blake, Cassels & Graydon LLP, as
legal counsel and Georgeson Shareholder Communications Inc., as proxy
solicitation agent. Shareholders with questions or needing assistance
in voting their WHITE proxy are encouraged to call Georgeson at (North
American Toll-Free) 1-888-605-8368.
About The Forzani Group
The Forzani Group Ltd. is Canada's largest national retailer of
sporting goods, offering a comprehensive assortment of brand-name and
private-brand products, operating stores from coast to coast, under the
following corporate and franchise banners: Sport Chek, Coast Mountain
Sports, Sport Mart, National Sports, Athletes World, Sports Experts,
Intersport, Econosports, Atmosphere, Tech Shop/Pegasus, Nevada Bob's
Golf, Hockey Experts, S3 and Fitness Source. The Company also has
websites for several of its corporate and franchise banners, which can
be accessed through its main website at www.forzani.com.