Dive Brief:
- Flanked by activist investor Mantle Ridge, Dollar Tree called out the fund in public statements in recent days, adding tension to the fight over the discounter's leadership and go-forward strategy.
- Dollar Tree said Mantle Ridge, which holds a 5.7% stake in the company, had acted in an "unwarrantedly aggressive and hostile manner" after Mantle Ridge notified the company of its intent to nominate an entirely new board.
- Dollar Tree's statement follows a Dec. 2 in-person meeting between the company's board and Mantle Ridge founder and CEO Paul Hilal, along with former Dollar General CEO Richard Dreiling, whom Mantle Ridge is trying to install in a leadership position at Dollar Tree.
Dive Insight:
Dollar Tree has had a turbulent year even before an activist investor announced its desire to replace the company's entire board.
The discounter has struggled more in a chaotic supply chain environment than some of its peers. Dollar Tree's adherence to the $1 price promise to customers has meant more lost profits than for those who have jacked up prices on consumers to hold onto their margins.
In August, the company signaled it could face up to $200 million in added supply chain costs, even as it reduced its expectations for how many promised shipments actually arrived. "We believe the Dollar Tree banner imports more containers per $100 million in sales than other large retailers," CEO Mike Witynski said then. "And combined with our low $1 price point, we have an outsized impact from freight costs."
Dollar Tree has since announced it plans to raise prices to $1.25 — a hike well above inflation rates this year, as GlobalData's Neil Saunders pointed out at the time — across a majority of its assortment. That represents a major pivot in its offer to customers. While the company said the move was not related to current supply chain cost increases, it will no doubt add to profits in both calm and turbulent times down the road.
Dollar Tree, which also owns the Family Dollar banner after acquiring it in 2015, has long underperformed against category juggernaut Dollar General. That could explain why Hilal and Mantle Ridge want to put Dreiling in a leadership spot — specifically as executive chairman, according to Dollar Tree's press release. (The retailer countered with an offer to give Dreiling a board spot and potential consulting gig.)
As for the meeting between Dollar Tree's current board and Hilal, the company wasn't shy about expressing itself. Dollar Tree said that "Mantle Ridge offered no new ideas for how to improve the Company's performance or operations." The "only operational suggestion" the activists made, according to the company, was that the retailer sell Dollar Tree merchandise at Family Dollar stores, which it said was "something Dollar Tree has already been doing for several years."
Dollar Tree went on to say: "Instead, Mantle Ridge simply expressed that it wanted a majority of the Board to be replaced, Mr. Dreiling to be named Executive Chairman, and other control rights. Taken together, in the view of the Board, these demands amounted to handing control of the Company to Mr. Hilal and Mantle Ridge."
For its part, Mantle Ridge said in a securities filing that it sought to nominate its directors because discussions with Dollar Tree "will not have time to reach conclusion before the deadline for nominations."
J.P. Morgan analysts led by Matthew Boss pointed out in a note that Mantle Ridge's proposed nominees included a former supply chain executive at Dollar General as well as several with ties to Mantle Ridge itself. "To that point, we see the involvement of P. Hilal (& Mantle Ridge) as highly engaged partners with opportunity to leverage their financial acumen across DLTR's internal control, incentive compensation, and balance sheet/capital allocation," the analysts said.
