The Byron Center-based grocery distributor and retailer has shuffled its management team as part of CEO Tony Sarsam’s transformation plan, sparking a proxy battle along the way.

0

Ohen Tony Sarsam took the helm of SpartanNash Inc., he noticed parallels between the West Michigan food solutions company and the previous company he ran.

Sarsam was hired as the new CEO of Byron Center-based SpartanNash (Nasdaq: SPTN) in September 2020 after stepping down as CEO of Dallas-based Borden Dairy Co., the oldest dairy company in the United States that , over time, had become a shell of his former self.

“There were great parallels,” Sarsam said, comparing Borden Dairy and SpartanNash. “Among them was that they were both companies with a long and proud heritage. …SpartanNash has a great heritage between Spartan Stores and Nash Finch Co., which merged in 2013. Both have great heritages.

For nearly two years now, Sarsam has been revamping the company’s leadership team.

Lately, however, SpartanNash has been a bit louder in touting their successes and future potential. The company is facing a group of activist investors who are unhappy with the leadership, publicly accusing SpartanNash of “strategic missteps”, holding down long-term board members and ignoring potential revenue streams.

The investor group is pushing for three new directors to sit on the company’s board at a crucial annual meeting of shareholders on June 9.

Changing of the guard

The transition to this new era of SpartanNash — which owns and operates 145 supermarkets in nine states under brands such as D&W Fresh Market and Family Fare as well as 18 fulfillment centers nationwide — began in the summer of 2019 when the Then-CEO David Staples abruptly resigned. Former CEO and then-president Dennis Eidson assumed the role of leader as the company searched for its new leader.

At that time, the company’s board of directors issued a statement indicating that SpartanNash’s execution under Staples had failed to meet expectations and that the board believed it was time for a change of direction. direction.

Meanwhile, Sarsam was working separately to revive the once-proud Borden Dairy, which at its peak generated around $7.2 billion in sales. This figure gradually decreased to $1.2 billion when Sarsam took the helm in early 2018.

Borden Dairy would eventually file for bankruptcy, joining fellow heavyweight Dean Foods which also did so as the dairy industry declined more widely.

At the end of 2020, Sarsam was hired as CEO of SpartanNash to try to breathe new life into another underperforming brand. He has since cleaned up the C-Suite: Eight of the 10 business leaders surrounding Sarsam today have been installed since early 2020, most under his leadership.

Sarsam said MiBiz it uses a single organization – global staffing firm Acertitude – for recruiting, relying on that organization to help build cohesive teams and not just recruit bright individuals.

“I use the example of a bowling team, where if everyone is playing a good game, then you have a good score,” Sarsam said. “But that’s not what we’re running. We are dealing with something more complicated. This team must be coherent.

These new additions include Chief Financial Officer Jason Monaco and Senior Vice President of Communications Adrienne Chance, who both made the trip with Borden Dairy’s Sarsam. Sarsam said working alongside them at Borden was like a “year-long interview process.”

“We were looking for people who could think through the building process we’re going to undertake and focus on people,” Sarsam said. “Jason and Adrienne have it all. They were a perfect fit for our business.

SpartanNash also renewed its board of directors under the leadership of Sarsam. In February, the company announced the addition of Julien Mininberg, Jaymin Patel and Pamela Puryear to the board, temporarily expanding the board to 12 directors until the three directors who are not seeking re-election in June .

“It was a long process, but we ended up with three really great directors,” Sarsam said. “This refresher process is an integral part of the board’s work, and I think our board has done a great job on this over the past year.”

New playbook

Sarsam’s new management mantra focused on three principles: people, operational excellence and ideas that lead to solutions.

One move that appears to be paying off for the company is a complete overhaul of SpartanNash’s supply chain following the arrival of new supply chain director David Petko, who first joined the company in April 2021 as Senior Vice President and was promoted to Executive Vice President. two months ago.

Sarsam and his team estimated that this supply chain exercise would result in cost savings of $15-30 million.

“We are, first and foremost, a distribution company,” Sarsam said. “This represents 71% of our business and 29% of retail. This transformation of our supply chain, making it more efficient and reliable, was going to be very important. »

In the first quarter, this effort resulted in savings of $15 million, according to the company.

“It’s the kind of stuff that gives us great confidence,” Sarsam said. “The investments we are making and the work our employees are doing to improve the process and the overall effectiveness and efficiency of our supply chain are paying off.”

Preliminary first quarter financial results were also quite positive, with net sales ranging between $2.74 billion and $2.77 billion, compared to $2.66 billion in the first quarter of last year. SpartanNash generated strong momentum in retail with a 7.2% increase in same store sales. The company raised its forecast to $9 billion to $9.3 billion in net sales for 2022.

Compete

These positives are points of attention for SpartanNash as he faces off in a proxy battle with an activist investor group made up of New York-based people. Macellum Advisors GP LLC and based in Cleveland Ancora Holdings Group LLC. This same group launched a similar activity within the distribution company Kohl’s.

Together, the investor group owns approximately 4.5% of SpartanNash’s common stock and has been publicly outspoken with its view that the company has long underperformed financially while making “strategic missteps.”

The group is campaigning with shareholders for three directors to sit on the board, including Macellum founder and CEO Jonathan Duskin, Bed, Bath & Beyond Inc. and Rue21Holdings Inc. board member John Fleming. , and Michael Lewis, who served as president of the Midwest Stores division for Walmart Inc. The investor group named the trio in March.

The investor group filed a definitive proxy statement with the U.S. Securities and Exchange Commission last month, which included a 64-page shareholder presentation titled: “Our solution to creating shareholder value of SpartanNash who have suffered for a long time”.

Among a list of grievances were concerns about longtime board members Douglas Hacker, William Voss and Margaret Shan Atkins, all of whom have served on the board for at least 17 years and have no grocery or distribution experience. . The group of investors is seeking to replace these three directors.

“Our strong analysis and engagement has led us to believe that SpartanNash’s leadership is tied to a flawed corporate structure and failed to execute core operating initiatives while leaving $1 billion of real estate held idle on the balance sheet, resulting in poor long-term unjustification. operational and financial results,” according to one of several statements from the investor group. “We submit that the blame lies entirely with the SpartanNash Board of Directors and its longtime members, who presided over numerous strategic missteps, significant turnover in the sequel, and the lack of a strategy for ‘clear and credible exploitation.”

Macellum and Ancora officials were unavailable to comment on this story.

The investor group also accused SpartanNash of failing to engage with them and ignoring parties interested in buying the company.

The complaints coincided with a report of Reuters last month, which said industry rival United Natural Foods Inc. and Chicago-based Oak Street Real Estate Capital were working separately on deals for SpartanNash.

In a May 2 response, SpartanNash said, “SpartanNash has not received any offers to purchase the company, and has not been approached directly by any strategic or financial buyers to acquire the company.”

Sarsam declined to comment on the proxy battle. But the company has publicly gone on the offensive, even creating a website to plead its cause in support of its current board of directors to shareholders.

Short and long term goals

With a back and forth of exchanges which should continue until the general assembly of June 9, MiBiz spoke with Paul Isley, Associate Dean of Undergraduate Programs at Seidman College of Business at Grand Valley State Universityon how activist investors can affect a company like SpartanNash.

“The upside is that it keeps the boards on their toes and has to be careful about: are we doing the best thing we can do?” Isley said. “But it also creates problems if the company has to use energy to deal with all these things and that energy is not spent on moving its business forward.”

“Certainly most of the time they can create value in the short term,” added Isley. “And I think one of the criticisms of this business is that it’s much more short-term oriented, because it’s looking to get something quickly, which might not be in the long-term interest of the company. ‘business.”

According to Isley, there are various reasons why activist investors may become involved in a company. In some cases, the group may perceive that a company is not moving fast enough in embracing an important trend, or that it may see potential to gain rapid value through the divestiture of a certain area. of activity.

For retail companies like SpartanNash that own many assets, these groups can pressure them to divest those assets to generate quick value.

“If what they’re saying is ‘I want you to do X, Y, and Z’ and those are good for your business, at least this whole movement is going in the right direction,” Isley said. “If a lot of the energy is about how we defend ourselves or should we defend ourselves, there’s not a lot of energy in a management team.”

Share.

Comments are closed.