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Dollar Tree Faces Board Shakeup by Activist Investor

Activist investment firm Mantle Ridge made moves late last week to replace the 11-member board of discount retailer Dollar Tree.

The firm, which owns a $1.8 billion stake in Dollar Tree, nominated 11 new members to the retailer’s 11-member board according to a regulatory filing. Mantle Ridge’s founder, Paul Hilal, was among those nominated. Activist have recently set their sights on retail companies including Kohl’s and Macy’s.

“The reporting persons believe the issuer will benefit from a refresh of the membership of the board,” the document filed with the Securities Exchange Commission (SEC) said. “In addition, the reporting persons believe the board should undertake a thoughtful and deliberative review of the company’s strategy, with a view to, among other things, fully develop the combined value of its two primary segments.”

The entire board is up for re-election next year. Mantle Ridge also advocated for hiring Richard Dreiling, former CEO and chairman of Dollar General, for a leadership role at Dollar Tree. Dreiling was not nominated to the board of directors.

Dollar Tree responded with a statement released on Sunday criticizing Mantle Ridge’s filing.

“Dollar Tree’s board of directors and management team maintain an ongoing dialogue with shareholders and welcome input about the company’s strategy and performance,” the statement said. “We are however disappointed that Mantle Ridge has been unwilling to engage with us constructively and has instead chosen to proceed in such an unwarrantedly aggressive and hostile manner. Mantle Ridge’s overreach in seeking to replace our full board with its own hand-picked slate—despite having no ideas or plans to improve on our business or operations—is not justified nor would it be in the best interests of Dollar Tree shareholders.”

While Dollar Tree has seen a stock price increase of 68.11 percent over the last five years, that gain still trails Dollar General’s 188.46 percent growth. Dollar Tree—which also owns Family Dollar stores—saw consolidated net sales increase 3.9 percent to $6.42 billion in Q3, comprised of $3.42 billion at Dollar Tree and $3 billion at Family Dollar. But the company’s gross profit margin for the Dollar Tree segment declined 470 basis points to 30.2 percent when compared to the prior year’s quarter.

The company announced in November that it would raise the price of most of its items to $1.25  by late April to offset skyrocketing freight costs.

“Freight and supply chain disruptions, of course, continue to be our biggest challenge in the near term by far and the impact will continue for a while,” said Michael A. Witynski during the company’s earnings call in November. “But this challenge is transitory. As we detailed last quarter, our team continues to take robust action to mitigate the impact of freight costs and supply chain disruptions. We believe that based on the steps that we have taken, we will benefit meaningfully as these challenges abate.”

In the filing, Mantle Ridge said it has been in talks with the Dollar Tree board to discuss the company’s financial issues. While the investor said it plans to continue talking with the company’s leadership, it opted to nominate new board members now since those talks likely won’t be completed in time for the nomination deadline.

In its statement, Dollar Tree said the company plans to continue discussions with Mantle Ridge despite its concerns about the filing.

“Regardless, the Dollar Tree Board stands ready to engage constructively with Mantle Ridge, even though it is disappointed that, rather than pursuing constructive engagement, Mantle Ridge has chosen to embark on an unwarranted and potentially disruptive proxy contest to replace the entire board,” the statement said. “While the company would like to avoid an expensive and distracting proxy fight, the board does not believe that handing control of the company to Mr. Hilal and Mantle Ridge as it demands is in the best interests of Dollar Tree, its shareholders or other stakeholders.”

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