A proxy fight brewing between Pitney Bowes and one of its top shareholders over the direction of its board has led to the departure of the company’s chairman and could end with a new CEO heading the shipping and mailing giant.
In a letter to Pitney Bowes shareholders on Thursday, Hestia Capital Partners urged the company to replace president and CEO Marc Lautenbach and implement a transition plan.
Hestia, which owns an 8.4 percent stake in Pitney Bowes, has nominated five independent candidates to replace four board members, including Lautenbach. In the letter, the investment firm cited the logistics business’s plummeting stock price and free cash flow since he took the CEO reins in December 2012.
During Lautenbach’s tenure, Pitney Bowes’ shares have declined more than 50 percent versus the 241 percent increase in price by the S&P 500 in that time frame. Additionally, the company’s credit rating has been downgraded six times during the period, compounded by the $1.77 billion in debt due over the next six years.
Michael Roth stepped down as chairman on March 2 after months of back-and-forth between Hestia and Pitney Bowes’ executives and board, which included multiple recommendations to install new board directors, and the proposal to look for Lautenbach’s replacement.
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With Roth stepping aside, the board elected another director, Robert Dutkowsky, as non-executive chairman. Two other directors, Douglas Hutcheson and David Shedlarz, won’t run for reelection when Pitney Bowes holds its annual shareholder meeting on May 9.
At the time, the Pitney Bowes board also appointed two new independent directors: Darrell Thomas, former treasurer and interim chief financial officer at Harley Davidson, and Steve Brill, retired president of corporate strategy at UPS.
But Hestia still wasn’t content after the board changes, specifically opposing Dutkowsky’s appointment due to his 25-year personal relationship with Lautenbach. The investment firm also opposed the reelection of two more board members, former American Express exec Anne Busquet and retired IBM senior vice president Linda Sanford.
Hestia recommended five board member candidates, including former Getty Images chief financial officer Milena Alberti-Perez, former Newgistics CEO Todd A. Everett, former ShippingEasy CEO Katie A. May, former Support.com CEO Lance E. Rosenzweig and Kurtis J. Wolf, managing member and chief investment officer of Hestia Capital.
The American Eagle Outfitters partner already agreed with Hestia on having May fill the vacant role in its nine-member board based on prior interactions, but said at the announcement of its new board members that “Hestia has not engaged in good faith in our discussions and has made numerous pivots which have impeded an amicable resolution.”
The Stamford, Conn.-based logistics company also said that calls to oust Lautenbach “represented a significant departure from all of Hestia’s prior demands, suggesting that Hestia has never been sincere about trying to resolve this matter short of a distracting proxy fight.”
Hestia first sought to shake up the Pitney board in November after various meetings with several execs including Lautenbach in the months prior, urging the shipping giant to add three new directors and form a strategic planning and capital allocation committee.
The investment company had concerns well beyond the stock price and credit downgrades after the previous engagements, including the declining performance of its Global Ecommerce business segment and overall profit since 2012. The Global Ecommerce unit provides business to consumer logistics services for domestic and cross-border parcel delivery, returns and fulfillment.
“We have shared our view that leadership’s long-term strategy of growing the company’s Global Ecommerce (GEC) segment to ‘scale’ has objectively failed,” Hestia said in the Thursday SEC filing. “Although GEC is a highly valuable business, we believe current leadership is pursuing a misguided strategy that makes little sense in the context of its competitive landscape. This view is supported by the fact that GEC EBIT has declined every year since 2015. We, therefore, have consistently encouraged Pitney Bowes to adapt its GEC-centric strategy and/or identify a viable strategic alternative for the segment.”
Since 2018, an increase of 1 million parcels has been correlated with a $475,000 decline in EBIT Hestia outlined in its letter to shareholders. Annual EBIT at Pitney Bowes has declined 82 percent since 2012.
Hestia was also critical of Pitney Bowes’ handling of acquired businesses like Borderfree and Newgistics, with the company buying the former for about $395 million in 2015 only to sell it for approximately $100 million in 2022 to cross-border commerce company Global-E. In 2017, Pitney acquired domestic parcel delivery solution provider Newgistics for $475 million, but while the company’s revenue has since increased from approximately $300 million to $1.2 billion, EBITDA margins have plummeted from an estimated range of 5 percent to 10 percent to negative 1 percent.
“We believe this decline in EBITDA is largely driven by a misguided strategy of shifting away from Newgistics’ roots as a niche logistics player to that of a large-scale logistics player,” Hestia’s proxy filing said. “This decision has forced Pitney Bowes’ domestic parcel business to compete more directly with far more well capitalized companies such as FedEx Corporation, United Parcel Service, Inc. and DHL Group. By returning to being a niche player in the e-commerce logistics space, we believe that the domestic parcel business can thrive as a smaller, profitable and growing business.”
Nevertheless, Pitney Bowes stood firm in its own proxy filing, which was filed on Tuesday. The shipping company made it a point to defend the performance of GEC business.
“We believe that Hestia fundamentally misunderstands our GEC business and continues to offer conflicting strategy recommendations. For example, since July 2022, Hestia has gone from privately pushing Pitney Bowes to sell GEC to then noting in February 2023 on live television that GEC is a valuable asset with the wrong strategy,” the proxy said. “Last week, Hestia claimed in its preliminary proxy statement that we should shrink GEC. These erratic and inconsistent demands illustrate one of the many ways that Hestia does not understand our business, is unable to define a coherent long-term strategy for Pitney Bowes, and would therefore likely be a poor steward of shareholder interests.”
Pitney Bowes’ most recent earnings report reflects some of the concerns Hestia has put forth regarding company growth. Revenue in the fourth quarter was $909 million, an 8 percent decline on a reported basis and flat on a comparable basis. Revenue for the GEC segment had a larger dip at 13 percent to $410 million.
On a positive note, the company brought in net income of $6.3 million in the quarter on earnings per share of 4 cents and adjusted EPS of 6 cents, surpassing 2021 fourth quarter net income of $1.3 million.