Shares of VF Corp. jumped 14 percent on Tuesday after activist investor Engaged Capital reported that it had built a stake in the owner of Vans and The North Face and planned to push for changes, including steep cost cuts, divestitures of non-core assets, and a board overhaul.
Shares were up $2.26 on Tuesday to $18.45. VF started the year at $27.61.
Engaged, based in Newport Beach, CA, said former VF Corp. CEO Steve Rendle, who left the company late last year, made several strategic errors during his tenure, including reducing autonomy among individual brands, underinvesting in Vans and making the Supreme brand acquisition, which hurt the balance sheet. Engaged wrote its statement, “The Supreme acquisition was, in our view, a break-down in risk management, paying a full multiple for a high fashion brand and lowering financial flexibility due to the assumption of debt.”
Engaged also said VF’s headquarters shift to Denver, CO, “drove massive spend and significant employee turnover.” The hedge fund further noted that under Rendle’s leadership, VF created an “overly complex administrative structure” that “bred a corporate culture burdened by excess bureaucracy, internal politics, and a lack of accountability.”
Rendle was appointed CEO in early 2017 and became chairman later that year.
“We believe VFC’s value destruction is directly attributable to Mr. Rendle’s failed strategy and the Board’s seeming unwillingness to intervene,” the company said.
Among the changes proposed, Engaged sees an opportunity to make upwards of $300 million in cost cuts through the “elimination of duplicative costs and corporate excess,” review discretionary capital spending, and hire advisors to perform a full review of non-core divestitures. It also wants the company to commit to holding off on acquisitions.
Engaged urged VF to restore brand autonomy and reinvest a portion of savings to accelerate innovation and support growth.
Finally, Engaged called for board changes. The company said, “Existing Board allowed strategic mistakes and corporate excess to continue unchecked, demonstrating the need for new Board members who will prioritize value creation.”
Engaged is, however, supportive of recently hired CEO Bracken Darrell, who took the position in July. “Mr. Darrell appears to have the transformation experience VFC urgently requires,” Engaged said. Darrell previously led Logitech.
Engaged said that if VF implements the proposed changes, shares could jump to a share price of $46 within three years. It is unclear how much of a stake Engaged has taken in VF.
VF responded to media inquiries about Engaged’s actions, saying, “VF has globally recognized and iconic brands and best-in-class talent. VF’s Board and leadership team, including our recently appointed CEO Bracken Darrell, are taking immediate and decisive actions to strengthen the company’s position and return VF to strong, sustainable, and profitable growth in the interests of all our shareholders.”
Photo courtesy VF Corp.