Foothill Ranch, CA—After weeks of battling between its board members and its third largest shareholder, Wet Seal’s board chairman and three directors were ousted and replaced Friday with four directors suggested by the activist shareholder.
The Wet Seal Inc., which operates about 550 mall-based stores under the Wet Seal and Arden B. brands, finally waved the white flag on Friday in its fight with New York based Clinton Group, a private equity firm that holds a 6.9% stake in the company.
Directors Jonathan Duskin, Sidney Horn and Henry Winterstern along with chairman Hal Kahn will be replaced by four of Clinton Group’s nominees: Mindy Meads, a former co-chief executive of Aeropostale; John Mills, a former chief operating officer of Aeropostale; Dorrit Bern, former chief executive of Charming Shoppes; and Lynda Davey, chief executive of investment bank Avalon Group.
Kahn will continue to serve as a consultant to the company.
The board changes come after a turbulent few weeks that began last month when Clinton Group sought the shareholders’ direct consent to oust most of the board and replace it with its slate. Last week, the proxy fight spurred negotiations that eventually broke down when Wet Seal offered and then rescinded a few hours later the proposal to have the four directors resign.
Instead, Wet Seal’s board urged shareholders to reject Clinton Group’s candidates “none of whom know our business model nor have meaningful experience in our fast-fashion business.”
‘Smooth, Orderly Transition’ in the Best Interest of Shareholders
But the board eventually caved last Thursday afternoon when Clinton Group reported that more than 50% of outstanding shares had voted to remove the directors. Clinton Group has terminated its consent solicitation as part of the agreement.
“The company now has a newly formed board where the majority have specialty retail experience,” Greg Taxin, managing director of Clinton Group, said in an interview. “We were able to achieve that in a way that allowed for a smooth transition.”
Three members of the old board remain, including Kathy Bronstein, a former Wet Seal chief executive.
“We believe that the agreement with Clinton Group is in the best interest of all Wet Seal shareholders,” said Ken Seipel, president and COO of Wet Seal. “This settlement will provide for a smooth and orderly transition of the board’s responsibilities, as well as a level of continuity for our employees.”
One of the first issues facing the new board will be to find a replacement for Susan McGalla, chief executive who was fired in July following months of lagging sales. The company also faces a racial discrimination lawsuit filed by three former store managers.
In August, the company announced a turnaround strategy that includes a return to its fast fashion roots and abandoning McGalla’s plans for “unique designs.”
Wet Seal has suffered 13 straight months of falling comparable store sales, including a 12.7% drop in September.
In other news about Wet Seal, Harriet Sustarsic, chief merchandising officer, will leave to join True Religion Brand Jeans.
Sustarsic, who will become senior vice president and general merchandise manager for True Religion, will remain with Wet Seal until Oct. 19 to assist with transition of her responsibilities.
Kim Bajrech and Debbie Shinn have assumed senior leadership of the Wet Seal merchandising division, which they previously shared on an interim basis from November 2009 through November 2011.