Hestia Capital Issues Statement From its Unaffiliated Director Candidates and Shares Key Facts to Reinforce the Urgent Need for Meaningful Change at Pitney Bowes
April 19 2023 - 8:30AM
Business Wire
Hestia Capital Management, LLC (collectively with its
affiliates, “Hestia” or “we”), which is the third largest
stockholder of Pitney Bowes, Inc. (NYSE: PBI) (“Pitney Bowes” or
the “Company”) and has a beneficial ownership position of 8.5% of
the Company’s outstanding common stock, today released the
following statement that was independently prepared by the
unaffiliated candidates – Milena Alberti-Perez, Todd Everett, Katie
May and Lance Rosenzweig – that Hestia is seeking to elect to the
Company’s Board of Directors (the “Board”) at the upcoming Annual
Meeting of Stockholders (the “Annual Meeting”):
“While we have been nominated by Hestia, we are completely
independent and will represent the interests of all stockholders and stakeholders inside the
boardroom. Each of us agreed to be put forth by Hestia because we
wanted to independently evaluate the challenges at Pitney Bowes and
collectively develop a thoughtful strategic plan to turn around
this storied Company. That is exactly what we have done in recent
months as we collaborated on an ongoing basis and functioned like
an action-oriented Board. If we are fortunate enough to be elected
by stockholders, we are going to immediately put this contest
behind us and start working with the remaining incumbents to make
the difficult – albeit necessary – choices required to address the
Company’s diminished cash flows, “junk” credit rating, long-term
share price declines and $1.7 billion in debt coming due over the
next six years. We do not take it personally that the current
Board, which is comprised of very decent people with admirable
goals, has criticized our slate and turnaround strategy. We
recognize that our respective slates simply have different visions
for transforming Pitney Bowes.”
Separately, Hestia is sharing the below facts that reinforce the
urgent need for changes in leadership and strategy. Please note the
Company’s 2015 acquisition of Borderfree represents the point in
which its long-term strategy started emphasizing the growth of the
perpetually underperforming Global Ecommerce (“GEC”) segment.
Pitney Bowes’ Impugned Credibility and
Sustained Underperformance
- Fact: The Board says it has
“the right strategy to deliver shareholder value,” but that
long-term strategy has delivered negative total stockholder returns
(“TSR”) across all relevant time horizons, including approximately
-80% since the acquisition of Borderfree in 2015 and approximately
-50% over the past decade.1
- Fact: The Board lacks
credibility when it comes to setting long-term guidance for GEC’s
EBIT margins; after guiding to 10%-15% EBIT margins in 2015,
leadership reduced that range to 8%-12% and, most recently, to
6%-8%.
- Fact: Pitney Bowes
purchased Borderfree for $395 million in 2015 and sold it for $100
million in 2022, representing a 75% loss on stockholders’
investment. This was the only “accomplishment” that the Board
pointed to when discussing how it “unlocked stockholder value” in
the Company’s January 23, 2023 response to our nomination.
- Fact: The Board remains
committed to improving GEC’s profitability by attaining “increased
volumes” – however, years of actual results show increased volumes are almost perfectly correlated with
increased losses for Pitney Bowes.
- Fact: The Board’s focus on
GEC’s growth has resulted in Free Cash Flow declining 90% over the
past decade (to just $50 million in 2022) and Pitney Bowes’ Senior
Unsecured Regular Bond rating dropping seven credit grades in
recent years (with the Company now at “junk” status).2
- Fact: The Board’s public
materials, which fail to acknowledge that a significant portion of
the Company’s current cash is restricted, does not include
actionable ideas for navigating a challenging financing environment
and addressing the $1.7 billion in debt maturing in the next six
years. Historically, the Company has had several hundred million of
annual Free Cash Flow when facing major debt maturities.
Pitney Bowes’ Compromised Corporate
Governance
- Fact: As the Board has
increased the interlocks among directors and recruited more
individuals with prior ties to Chief Executive Officer Marc
Lautenbach, the Company’s share price has continually declined and
management’s performance targets for compensation have been
significantly reduced. Notably, each new director appointed during
Mr. Lautenbach’s first 10 years of service had a connection to at
least one other sitting director.
- Fact: Robert Dutkowsky, who
joined the Board five years ago and has served on the Executive
Compensation Committee, was elevated to the Chairman role as part
of the Company’s recent “refresh” despite a close relationship with
Mr. Lautenbach that spans more than 20 years. The Board has not
published a justification for appointing a close associate of Mr.
Lautenbach to the role of “independent” Chairman.
- Fact: Linda Sanford, who
joined the Board in 2015, is Chair of the Executive Compensation
Committee despite her decades-long relationship with Mr.
Lautenbach, and the fact that she was recommended to the Board by
Mr. Lautenbach.3
- Fact: Anne Busquet, who has
served on the Board for 16 years and is Chair of the Governance
Committee, has overseen a significant increase in boardroom
interlocks. After Ms. Busquet became Chair of the Governance
Committee, the first new director appointed to the Board had direct
ties to her.
- Fact: The Board claims Mr.
Lautenbach owns 2.9% of the Company, when the fact is that the
majority of this position is comprised of out-of-the-money options
granted to him.4 Mr. Lautenbach has not made meaningful open market
purchases during his tenure despite receiving more than $66 million in compensation and
maintaining a large golden
parachute.
- Fact: The Board markets a
governance “quality score” without disclosing if it has been a
client of the advisory firm that provided it and without noting
that long-term director interlocks are not factored into the
score.
The Hestia Slate’s Plans and
Qualifications
- Fact: Hestia’s nominees
have shared a transition plan to mitigate change-in-control risks
for employees, customers, partners and other stakeholders. Our plan
accounts for stabilizing the business with our interim Chief
Executive Officer candidate, who is a turnaround expert.
Furthermore, we have been working with a recruiting firm to
identify an exceptional permanent leader with industry
experience.
- Fact: Hestia nominee Katie
May did not join the Company’s Board when she received an
invitation last year. She elected to continue as part of the Hestia
slate to drive more meaningful, stockholder-driven change and has
been involved in our meetings with investors – not the Company’s
meetings.
- Fact: Hestia nominee Todd
Everett, who led Newgistics, Inc. to profitable growth prior to its
sale to Pitney Bowes, was offered a Board seat during discussions.
The Company is now saying that he is unqualified and recently began
smearing Mr. Everett, including by alleging baseless antitrust
claims. He was uninterested in joining the Board when the offer was
made because he determined more meaningful, stockholder-driven
change is needed.
- Fact: Hestia nominee Milena
Alberti-Perez’s background as a Chief Financial Officer and public
company Audit Committee Chair is applicable to helping management
improve capital allocation, pay down debt and restore the Company’s
credit rating. The Company has recently begun to peddle falsehoods
about Ms. Alberti-Perez, including implying she had to leave
another company due to creditor litigation. This is akin to Hestia
suggesting the incumbents are not fit to serve due to a 2018
lawsuit that claimed Pitney Bowes “violated federal law and misled
debtholders in a bond offering” – something we never previously
mentioned due to the pettiness of such accusations.5
- Fact: Hestia nominee Lance
Rosenzweig is a proven turnaround executive, which is what Pitney
Bowes needs after a decade in which it lost 50% of its equity
value, incurred numerous credit downgrades (including a recent
“double downgrade”) to “junk” status and saw Free Cash Flow drop to
roughly $50 million (against the backdrop of $1.7 billion in debt
maturing over the next six years). He was the Chief Executive
Officer of Support.com, Inc. (formerly NASDAQ: SPRT), which
delivered TSR of more than 630% during his tenure. He also served
as the Chief Executive Officer of Startek Inc. (NYSE: SRT), where
he stabilized a struggling organization with more than 40,000
employees and dramatically improved earnings, and PeopleSupport,
Inc. (formerly NASDAQ: PSPT), which he co-founded and helped
achieve attractive stockholder returns.
- Fact: Kurt Wolf’s
willingness to be creative when pursuing settlement frameworks in
2022 and early 2023 is being mischaracterized as “erratic” by the
Board. The fact is Mr. Wolf wanted to avert a proxy fight, which is
why he suggested various frameworks and even agreed to let the
Board interview his candidates before any framework was in place.
Furthermore, despite the Company’s misleading attacks, Mr. Wolf
stepped down as a director of Edgewater Technology, Inc. due to a
successful sale and as a director of GameStop Corp. (NYSE: GME)
after putting in place a plan to eliminate debt and add significant
cash to the balance sheet. In both cases, Mr. Wolf left the
companies better than when he joined and helped avert potential
bankruptcies.
Response to Pitney Bowes’ April 18th
Rebuttal Communications
The Board published a press release and deck on April 18th,
which included numerous misleading, and even some outright false,
claims. The deck linked here and the below facts address a subset
of the Board’s statements.
- Fact: The Board has not overseen meaningful cost
reductions. Although it claims a decline in SG&A as a
percentage of Revenue is evidence of cost controls, the Board omits
that this decline is due to Pitney Bowes growing GEC – a logistics
business that is defined by low Gross Margins and low SG&A as a
percentage of Revenue. The more insightful metric to consider is
SG&A as a percentage of Gross Profit because it adjusts for the
different margin characteristics of various businesses.
SG&A as a percentage of Gross Profit has
grown from 66% to 84% over the past decade, while the Company’s
self-identified peer group has remained flat at 62%.
- Fact: The Board is making a
false statement when it says our slate’s plan attributes $725
million to $1.05 billion in value to GEC EBIT improvement
initiatives; in reality, our plan shows a potential increase in
valuation of $300 million to $500 million from these initiatives.
Likewise, the Board is making a false statement when it says our
slate’s plan accounts for reducing GEC’s sales by $600 million; in
reality, our slate lays out an expected revenue decline of
approximately $300 million.
- Fact: The Board is making
the misleading claim that pillars of our turnaround strategy are
“contradictory.” It is hard to make sense of this claim as its own
rebuttal mixes up references to our slate’s deck. On page 6, bullet
point 5, the Board makes references to pillars #1 and #5, but the
facts they reference are not aligned with those pillars in its own
presentation (see slide 3) or our presentation.
- We infer that the Board is saying improving GEC profitability
and exploring sale options for GEC are contradictory, but such a
contention is simply not true. Improving GEC profitability – or
more accurately, reducing losses – would create value by improving
the Company’s Net Income. The value our slate ascribes to a
possible sale of GEC does not give any value boost for the
additional losses eliminated through a sale.
- Since our slate’s GEC EBIT improvements only account for a
reduction in losses, a prospective sale of the segment would not
only accelerate reductions and generate the cash value, but it
would immediately eliminate remaining GEC losses. As such, a
well-timed sale of GEC would likely increase value by more than our
slate’s projections (in addition to the value attributed to
reducing GEC’s losses).
- Fact: The Board is
downplaying Pitney Bowes’ damaged credit rating and looming debt
wall. The Board’s “analysis” of percentage of debt over certain
time horizons is irrelevant to financial risk. More important is
the ability to cover debt maturities (which also impacts the
ability to refinance debt). To that end,
Pitney Bowes’ debt maturities over the next six years are equal to
35x the Company’s 2022 Free Cash Flow. These numbers are
significantly lower for peers, such as 1.4x for FedEx, 6.8x for
XPO, and 7.3x for Ryder. This is why Pitney Bowes’ Senior
Unsecured Debt rating has declined seven notches over the past
several years, while FedEx, XPO and Ryder have had no such
issues.
- Fact: Hestia’s nominees
have published a detailed turnaround strategy that includes a clear
framework for improving cash flows, reducing debt levels and
producing sustainable value, while the Company’s interconnected
Board wants to maintain an eight-year-old strategy that has already
yielded several credit downgrades, sustained declines in Free Cash
Flow and TSR of approximately -80%.
***
As a reminder, Hestia is seeking to elect
five highly qualified and independent candidates to Pitney Bowes’
nine-member Board at the Company’s Annual Meeting on May 9,
2023.
To maximize the likelihood of a turnaround
at Pitney Bowes, we urge you to vote for Hestia’s full slate on the
WHITE universal proxy card or
WHITE voting instruction form.
Visit www.TransformPBI.com to download a
copy of our investor presentation and receive future
updates.
***
About Hestia Capital
Hestia Capital is a long-term focused, deep value investment
firm that typically makes investments in a narrow selection of
companies facing company-specific, and/or industry, disruptions.
Hestia seeks to leverage its General Partner’s expertise in
competitive strategy, operations and capital markets to identify
attractive situations within this universe of disrupted companies.
These companies are often misunderstood by the general investing
community or suffer from mismanagement, which we reasonably expect
to be corrected, and provide the ‘price dislocations’ which allows
Hestia to identify, and invest in, highly attractive risk/reward
investment opportunities.
1 TSR data was obtained via Bloomberg and includes dividends
reinvested. TSR data runs through the close of trading on November
18, 2022, which is the last day of trading prior to Hestia filing
its Schedule 13D with the SEC. 2 Hestia April 2023 presentation,
slide 9. 3 Company filings. 4 The average strike price of Mr.
Lautenbach’s options is $9.22, or more than 2.3x the current stock
price. 5 The Stamford Advocate, “Pitney Bowes faces bondholder
lawsuit,” September 26, 2018 (link).
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version on businesswire.com: https://www.businesswire.com/news/home/20230419005448/en/
Longacre Square Partners Charlotte Kiaie / Miller Winston,
646-386-0091 hestia@longacresquare.com
Saratoga Proxy Consulting LLC John Ferguson / Joe Mills,
212-257-1311 info@saratogaproxy.com
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