Print this article | Return to Article | Return to CFO.com
With the stock price down 11 percent since the move was announced two weeks ago, investors blast the company for seeking to save a paltry $750,000 at the expense of shareholder value.
Stephen Taub, CFO.com | US
January 2, 2008
Syms stockholders apparently believe an educated investor makes the best shareholder.
An investor group led by activist hedge fund Barington Capital Group and Esopus Creek Advisors sent a letter to the clothing company's board urging it to reconsider its recent decision to deregister its common stock and delist from the New York Stock Exchange.
The investors, who own 9.7 percent of Syms's outstanding shares, say these actions will destroy shareholder value. Indeed, since the decision was disclosed on December 21, the price of the common stock has fallen by more than 11 percent.
Syms said it planned instead to list its shares on the lightly regulated Pink Sheets, which would save it a sizable sum of money since it won’t need to meet certain compliance requirements.
The company would not be permitted to deregister if it had at least 300 stockholders of record. The investor group says it believes there are more than 1,000. However, Syms is taking advantage of a technicality: It says most of the shares are registered in "street names"— those of brokers or banks holding the investments — rather than in the shareholders' own names.
So, the investors recommend in the letter that fellow stockholders contact the entities holding their shares and register them in their own names.
The company said it is taking the share-delisting and deregistration actions mainly to minimize financial and administrative burdens associated with Sarbanes-Oxley compliance. Syms estimates the direct recurring annual savings will exceed $750,000.
Syms said in a release that "management will be able to better focus its attention and resources on continuing to improve operations and enhancing shareholder value."
"We believe the costs associated with being a SEC-registered company which is listed on the New York Stock Exchange outweigh the benefits," said CEO Marcy Syms. "Moreover, we expect that trading on the Pink Sheets will continue to provide a platform and liquidity to our shareholders."
The investor group notes that the deregistration will suspend the company's obligation to make routine public filings with the SEC. “This will significantly harm stockholders, as they will no longer be assured access to detailed financial and other information concerning their investment on a continuing basis,” the letter states.
The investor groups adds that it takes little comfort from the company's assertion that it intends to make information available to the market, including audited financial statements, that is "generally equivalent" to that previously made in its filings with the SEC. "If this is truly the case, then what is the need, or the benefit to stockholders, for deregistering?"
The investors also note that the delisting will negatively impact its liquidity, regardless of whether the shares are available for trading on the pink sheets.
"In our view, the costs to the company's stockholders of these destructive actions will not even begin to be offset by the estimated $750,000 in annual savings," the investors assert. "While we are generally supportive of efforts to reduce expenses, we are surprised that the Board would consider cutting costs in areas that are so damaging to the public stockholders that it has a fiduciary duty to protect."
As an alternative, the group recommends the board consider listing on the Nasdaq, which is generally less costly than the NYSE, as well as explore ways to reduce operating expenses and monetize the company's valuable real estate holdings.