The Forzani Group Ltd. announced that it is mailing a letter to shareholders. The letter provides an update on the support that FGL has received for all eight of its nominees for the Board of Directors and summarizes the reasons why shareholders should vote the WHITE proxy in favour of the FGL nominees.
The election takes place on June 10, 2009 at the FGL annual meeting. The New York hedge fund Crescendo Partners opposes two of the eight FGL nominees.
“Crescendo has not made a compelling case for change that would benefit FGL or its shareholders,” said FGL Chairman John Forzani. “FGL has a strong Board, good corporate governance, a clear and compelling strategy, a track record of results and superior Board nominees who are not beholden to any one shareholder and will act in the best interests of all shareholders.”
Continued Mr. Forzani, “Now it's up to you to help keep your Company moving forward and creating value for all shareholders.”
The complete text of the letter to shareholders is provided below.
June 2, 2009
Dear Fellow Forzani Shareholders:
Hedge fund Crescendo Partners is trying to put two nominees onto your Board of Directors: a journeyman CEO who has held 5 jobs in the past 11 years (most recently for a toy store company with two retail outlets), and a recently-minted MBA.
We believe you deserve better, and we are not alone:
– Letko, Brosseau & Associates, FGL's largest shareholder with a 15.9% stake, supports all eight FGL nominees. On May 26, 2009, Letko Brosseau issued a news release in which it said, “It is not clear to us that Crescendo or its nominees have a full appreciation of the strategies being pursued by FGL nor do we have confidence that they are prepared to give management the time required to fully implement their plans.”
– Glass Lewis, an independent proxy advisory firm, says Crescendo “failed to make a compelling case” and recommends shareholders vote in favour of all eight FGL nominees.
– RiskMetrics, another independent proxy advisory firm, recommends shareholders withhold support for Crescendo nominee David Sgro.
– FGL's Quebec franchisees, who represent more than 30% of FGL's retail sales, oppose Crescendo's plan to remove FGL director Henri Drouin.
Crescendo argues that FGL's Board has lost its sense of urgency and “missed an opportunity” to sell the company in 2007. Their argument is unconvincing and, in many cases, demonstrably wrong. More than that, their proposed nominees are inferior to ours and they have failed to put forward a credible business plan of their own. Consider the facts, then you decide.
– FGL and its Board are actively working to create and deliver shareholder value. Over the past two years, FGL has restructured and streamlined its executive ranks, collapsed three buying teams into one, completely retooled its marketing and store operations, brought the merchandise assortment of its corporate stores more in line with that of its successful franchise business, and mapped out a clear and deliberate banner rationalization program. FGL also promoted the head of its highly successful Sports Experts franchise operation to be the President of FGL so that the industry-leading performance at Sports Experts can be applied across FGL's 128 corporate-owned Sport Chek stores. Within a few weeks, FGL will complete the implementation of a single integrated IT platform for core banners. These actions, all taken with the Board's approval and direction, are delivering results.
Over the past three years, the Company's same store sales growth has averaged higher than that for any of its peers, a result of the Company's execution and the success of merchandising initiatives. During this period, FGL's average EBITDA margin of 8.3% is in line with several of its peers and ahead of several others.
For the three-year period ended May 13, 2009 (the last trading day before Crescendo filed its dissident circular) FGL's total return has outperformed that of its peers and comparable indices.
– FGL has strong corporate governance. The FGL Board meets all independence standards, has a lead director, a fully independent and highly qualified audit committee, regularly meets for in camera sessions without management present, and has a near-perfect attendance record for the full Board and all of its committees. Average tenure on the Board is less than seven years, excluding the fully appropriate 35 years served by company founder and Chairman John Forzani. Moreover, the Board has rejuvenated itself in recent years with high-quality and predominantly independent directors who bring industry-leading expertise in their respective fields, including:
— June 2009 (nominated): Donald Gass, FCA, retired Senior Partner, Deloitte & Touche, past President, Canadian Institute of Chartered Accountants;
— 2007: Jay Peters, President of J. Peters & Company Inc., a retail industry management and marketing consultancy, and previously a senior executive with TLC Laser Eye Centres, Horizon International (a division of The Oshawa Group Ltd.) and Wendy's Restaurants of Canada Inc.;
— 2005: Paul Walters, past Chairman, President and CEO of Sears Canada Inc., held a number of executive management positions with Hudson's Bay Company;
— 2003: Robert Sartor, Chief Executive Officer, The Forzani Group Ltd.;
— 2002: Henri Drouin, Chairman of the Board of RONA Inc. from 1981 to 2002, and previously a sporting good franchise store owner and operator.
– FGL's Board did not miss an opportunity to sell the company in 2007. Crescendo is wrong to say otherwise. As described more fully in an open letter to shareholders posted on our website, we never received a binding offer to purchase the Company. All we received was a series of expressions of interest, each of which was subject to completion of due diligence and the bidding group obtaining acceptable financing. We facilitated the process by making confidential information available to interested acquirors and financing parties. We further assisted the bidding group by permitting the parent Canadian bank of our financial advisor to discuss making financing available. Notwithstanding our co-operation, at the end of the process, the bidding group advised that it was abandoning discussions because it could not obtain financing. These events played out during the onset of the global credit crisis at a time when financing was extremely tight and very few deals were being done.
In other words, no matter what Crescendo wants you to believe, there was never any “deal” to bring to the Company's shareholders.
– FGL's Board nominees are highly qualified, add strategic value to FGL, and will act in the best interests of all FGL shareholders. Crescendo has put forward no plan, no ideas and no strategy for creating value at FGL beyond what the company is already doing. All it has done is put forward two nominees to the Board whose credentials are inferior, in our view, to the Board's nominees. Consider:
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FGL's retail nominee: Henri Drouin Crescendo's retail nominee: Barry
Erdos
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FGL supports the election of Mr. Crescendo has put forward a US retail
Drouin on the grounds that he is a executive named Barry Erdos. He has
retail expert with broad had five employers in the past 11
experience in multi-location years, according to Crescendo's
Canadian national retailing and circular. He is presently CEO of a
specific experience in FGL's toy store business with two retail
important Quebec market. outlets that is in the process of
being acquired.
Mr. Drouin has been a retail Prior to his current post, Mr. Erdos
storeowner, operator and franchisee spent approximately one year heading
in Quebec since 1965 when he the publicly traded online retailer
purchased his first hardware store Bluefly.com. While he was in charge
in partnership with a colleague. In the market value of the shares
1968 he added a sporting goods dropped by approximately 75%, a
department to his store and became a pertinent fact that is omitted
dealer for Sports Experts-the from Crescendo's circular.
franchise business later acquired
by FGL.
In addition to successfully None of Mr. Erdos' five recent
operating these and other retail employers appear to have had
businesses for decades, for 26 material operations in Quebec or
years ending in 2002 Mr. Drouin was elsewhere in Canada.
a member of the Board of hardware
retail giant RONA Inc. of
Boucherville, Quebec. He was
Chairman of RONA for 21 years, from
1981 to 2002. This was a period of
exceptional growth for one of
Canada's great business success
stories.
Mr. Drouin is fluent in English and
French, and is the Board's crucial
local link to FGL's Quebec
franchisees, approximately 40% of
whom are unilingual francophones.
This is no small matter – nearly
one-third of FGL's retail sales come
from Quebec. Mr. Drouin received a
Bachelor of Commerce degree in 1964
from HEC Montreal, a top-ranked
Canadian business school. Mr. Drouin
was elected to the Board in 2002.
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FGL's nominee Donald Gass, FCA Crescendo's nominee David Sgro, MBA
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FGL supports the election of Mr. Crescendo has nominated David Sgro, a
Gass, a Fellow Chartered Accountant young man who obtained his MBA in the
(FCA) in Ontario, Alberta and graduating class of 2005. Crescendo
Saskatchewan, on the grounds that has omitted the year of his
he is a Canadian accounting expert graduation from the dissident
and is highly qualified to serve on circular.
the Audit Committee. He ideally
fills the gap that would otherwise Crescendo touts Mr. Sgro's experience
have been left on FGL's Board with as an officer of two privately held
the upcoming retirement of Bill “blank cheque” companies; in other
Grace, also an accounting expert words, companies that typically exist
and FCA. This is not by coincidence on paper only and which have no
but rather is the result operations.
of a deliberate process by the
Board.
Mr. Gass, who retired last year as He apparently has no Canadian business
a senior partner from Deloitte & background. In 1976, the year before
Touche LLP, is a former President this Crescendo nominee was born, Mr.
of the Canadian Institute of Gass was made a partner at Deloitte &
Chartered Accountants. He has Touche.
decades of business experience,
including personal involvement FGL submits that Mr. Sgro's experience
in numerous mergers, acquisitions, is not sufficient to qualify him as
asset dispositions and an FGL director, especially when
restructurings. He is particularly compared with Mr. Gass.
well-versed in International
Financial Reporting Standards, the
new accounting rules that Canada –
but not the US – will adopt at the
end of 2010. Mr. Gass graduated with
a Bachelor of Commerce Degree from
the University of Saskatchewan in
1968.
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These are the facts. Crescendo has made a lot of noise, but has put forward inferior board nominees, no plan, no specific proposals and no compelling case for change that would benefit FGL or its shareholders.
FGL has a strong Board, good corporate governance, a clear and compelling strategy, a track record of results and superior Board nominees who are not beholden to any one shareholder and will act in the interests of all shareholders.
Now it's up to you to help keep your company moving forward and creating value for all shareholders. Don't let Crescendo disrupt or weaken your Board.
Vote the WHITE proxy.
Sincerely,
John Forzani, Chairman of the Board
