Express is the latest fashion retailer taking steps to dissuade unwelcome investor attention in the wake of share prices that have plummeted 65 percent since the beginning of the year.
This week, the chain store company adopted a shareholder rights plan, a move it said “has not been adopted in response to any specific takeover bid or other proposal to acquire control of the company.” Rather, Express added, the move will “allow the company’s shareholders to realize the expected benefits of [its] new strategy.”
While some believe that shareholder rights plans, often referred to as poison pills, are aimed at preventing takeovers, they are really aimed at barring anyone from attempting a hostile takeover without having to negotiate with existing management and a company’s board. The plans operate by allowing existing shareholders to acquire additional shares at a discount under certain conditions. That makes it harder for anyone to acquire a controlling interest and forces the acquirer to work with the company to negotiate a better acquisition price for shareholders. Critics say the plans also allows the boards to identify suitors better aligned with their vision of the company’s best interests, as well as help keep existing management entrenched in their positions.
In the case of Express, the plan is “not intended to prevent or interfere with any action with respect to the company that the board determines to be in the best interest of shareholders,” the company said.
Like similar plans that have been put in play recently by fashion firms, Express’ plan has a 12-month term that expires on April 19 next year.
With the coronavirus pandemic driving continued volatility in the equity markets, plunging share prices make many fashion firms easy targets. Stock for Express is currently trading in the range of $1.70, a 65 percent decline from its closing price of $4.81 on Jan. 2.
Companies that have gone the poison pill route recently include Chico’s FAS Inc. and Tailored Brands, while J.C. Penney’s Co. Inc. renewed through Jan. 23, 2023 a plan that was initiated in January 2017 and was set to expire on Jan. 25 of this year.
If Penney’s plan doesn’t receive shareholder approval at its next annual shareholders’ meeting, the plan will terminate.