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Published in Food/Agribusiness

SpartanNash renews executive team under Sarsam, faces new proxy fight with investors

BY Sunday, May 22, 2022 06:00pm

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

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

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

Over nearly two years now, Sarsam has overhauled the company’s corporate leadership team.

Lately, though, SpartanNash has been a bit louder in touting its successes and future potential. The company is facing off with an activist investor group that is unsatisfied with leadership, publicly accusing SpartanNash of “strategic missteps,” maintaining long-term board members and ignoring potential revenue streams.

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

 

Changing of the guard

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

At that time, the company’s board released a statement saying SpartanNash’s execution under Staples had fallen short of expectations and that the board thought it was time for a leadership change. 

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

Borden Dairy would eventually file for bankruptcy, joining fellow heavyweight Dean Foods that also did so as the milk industry more broadly declined.

By late 2020, Sarsam was hired as CEO of SpartanNash to try to breathe new life into another underperforming brand. He has since cleared house in the C-Suite: Eight of the 10 corporate leaders surrounding Sarsam today were installed since early 2020, mostly under his watch.

Sarsam told MiBiz he uses just one organization — global recruiting firm Acertitude — for recruitment, leaning on that organization to help assemble cohesive teams and not just recruit bright individuals.

“I use the example of a bowling team, where if everyone bowls a great game, then you have a great score,” Sarsam said. “But that’s not what we’re running. We’re running something more complicated. That team has to be cohesive.”

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

“We were looking for people that know how to think about the building process that we’re going to undertake and focus on people,” Sarsam said. “Jason and Adrienne have all that. They were easy fits for our company.”

SpartanNash also refreshed its board of directors during Sarsam’s leadership. In February, the company announced the addition of Julien Mininberg, Jaymin Patel and Pamela Puryear to the board, temporarily extending the board to 12 directors until the three directors who are not seeking reelection exit in June.

“It was a long process, but we wound up with three really terrific directors,” Sarsam said. “That refresher process is a common part of board work, and I think our board did a great job on that in the past year.”

 

New playbook

The new mantra of Sarsam’s administration has focused on three tenets: people, operational excellence, and insights that drive solutions.

One initiative that appears to be paying dividends for the company is a complete overhaul of SpartanNash’s supply chain after bringing in new Chief Supply Chain Officer David Petko, who first joined the company in April 2021 as a senior vice president and was promoted to executive vice president two months ago.

Sarsam and his team estimated that this supply chain exercise would drive $15 million to $30 million in run-rate cost savings.

“We’re, first and foremost, a distribution company,” Sarsam said. “That’s 71 percent of our business and 29 percent is retail. That transformation of our supply chain — making it more efficient and effective and more reliable — was going to be very important.”

As of the first quarter, that effort has driven $15 million in cost savings, according to the company.

“Those are the kinds of things that give us great confidence,” Sarsam said. “The investments we make and the work that our people are doing to improve the process and the overall effectiveness and efficiency of our supply chain is paying dividends.”

Preliminary financial results from the first quarter were fairly positive, as well, with net sales between $2.74 billion and $2.77 billion compared to $2.66 billion in the first quarter of last year. SpartanNash generated solid momentum in retail with a 7.2-percent increase in comparable store sales. The company raised its guidance to $9 billion to $9.3 billion in net sales for 2022.

 

Face off

These positives are points of emphasis for SpartanNash as it faces off in a proxy fight with an activist investor group composed of New York City-based Macellum Advisors GP LLC and Cleveland-based Ancora Holdings Group LLC. This same group has launched similar activity at retail company Kohl’s.

Together, the investor group owns roughly 4.5 percent of the shares of SpartanNash common stock shares and has been publicly outspoken with its opinion that the company has long underperformed financially while also making “strategic missteps.”

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

The investor group filed a definitive proxy statement with the U.S. Securities and Exchange Commission last month that included a 64-page presentation for shareholders titled: “Our Solution To Create Value For Long-Suffering SpartanNash Shareholders.”

Among a list of grievances were concerns with long-term 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 investor group is looking to replace those three directors.

“Our robust analysis and engagement have led us to believe SpartanNash’s leadership is wed to a flawed corporate structure and has failed to implement basic operating initiatives while leaving $1 billion of owned real estate sitting idle on the balance sheet, resulting in unjustifiably poor long-term operating and financial results,” according to one of the investor group’s many statements. “We contend the blame falls squarely on the SpartanNash Board and its long-tenured members, who have presided over numerous strategic missteps, significant c-suite turnover and the lack of a clear and credible operating strategy.”

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

The investor group also has accused SpartanNash of not engaging with them and ignoring parties interested in purchasing the company.

The claims coincided with a report from Reuters last month that stated industry competitor United Natural Foods Inc. and Chicago-based Oak Street Real Estate Capital were separately working on bids for SpartanNash.

In a May 2 response, SpartanNash stated: “SpartanNash has not received any offers to buy the company, nor has it been approached directly by any strategic or financial buyer to acquire the company.”

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

 

Short-, long-term goals

With a back-and-forth volley of exchanges expected to continue until the shareholder’s meeting on June 9, MiBiz spoke with Paul Isley, associate dean of undergraduate programs for the Seidman College of Business at Grand Valley State University, about how activist investors can affect a company like SpartanNash.

“The good side is it keeps boards on their toes and having to pay attention to: Are we doing the best thing we can do?” Isley said. “But it also creates problems if the firm has to use energy thinking about dealing with all these things and that energy is not being spent moving their business forward.”

“Certainly, a lot of the time, they can create some short-term value,” Isley added. “And I think that’s one of the criticisms of this activity is that it’s much more short-term focused because it’s looking at can we get something quick, which might not be in the long-term interest of the company.”

A variety of reasons can prompt activist investors to get involved with a company, according to Isley. In some cases, the group might perceive that a company is not moving fast enough in adopting an important trend, or that it might see potential to score quick value through divestiture from a certain area of business.

For retail companies like SpartanNash that own a lot of property, these groups can push them to divest from that property 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 company, at least all that movement is moving in the right direction,” Isley said. “If a lot of the energy is on how we defend ourselves or should we defend ourselves, there is only so much energy in a leadership team.”

Read 1246 times Last modified on Monday, 23 May 2022 08:53
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