Starboard, Regis lobby for support in proxy battle

As Regis Corp. and Starboard Value LP campaign for their nominees to the company's board of directors, each side is touting recommendations from the nation's two top shareholder advisory firms to back their position.

Starboard, a New York-based activist hedge fund that owns about 5.2 percent of Regis, is demanding that the Edina-based owner of hair salons cut $100 million in costs, sell off noncore assets and reorganize its North American business.

Regis said it would explore selling off its Hair Club for Men and Women business, cut $40 million to $50 million in costs over the next two years, and that Regis' chairman and CEO, Paul Finkelstein, would leave the company next year, according to documents filed with the Securities and Exchange Commission.

However, Regis' slate of six board nominees did not include any of Starboard's candidates: Starboard CEO Jeffrey Smith; former Charming Shoppes CEO James Fogarty, and David Williams, who previously served as executive vice president of Chemed, a provider of hospice care, repair, and maintenance services. Regis says it's willing to offer Starboard one seat.

In a report issued Tuesday, Institutional Shareholder Services (ISS) unequivocally endorsed Starboard, urging investors to elect all three of its nominees to the board. ISS made its decision based on what it says are Regis' poor corporate governance practices, especially on executive compensation, and the loss of shareholder value over the years.

"While the board has taken steps to address its financial underperformance and remedy some of its governance shortcomings, it seems clear that the board's actions were likely reactionary responses to [Starboard's] contest," the report said. "[This] raises the question whether the current board really had an appropriate sense of urgency about the long decline in operating performance and the resulting destruction of shareholder value."

Glass & Lewis Co., chief competitor of ISS, took a more nuanced stance on the proxy battle. While the firm said Regis would benefit from Starboard's expertise on the board, a single seat is sufficient.

"In our opinion, one seat on the board is adequate in light of Starboard's economic interest and will provide [Starboard] further insight to the company's operations," the report said, "as well as the ability to participate in the ongoing strategic decisions and planning for the company's turnaround.

In a statement, Regis praised Glass & Lewis' report, arguing Starboard's demand for three seats was unreasonable given its minority stake in the company. "This is not the time to disrupt the execution of the changes that are underway at Regis," the company said.

Starboard executives say they feel Glass & Lewis' support of even one of their candidates, Starboard CEO Smith, was a significant victory, given the high threshold dissident shareholders must meet.

Though they would not comment on specific investor support, Starboard executives say they "will do very well" when shareholders make their decision at next week's annual meeting.

Thomas Lee • 612-673-4113