Charming Shoppes settles with activist shareholders

A few minutes past the 10 a.m. scheduled start of the meeting, in a cheerily lit room in Bensalem, a company representative abruptly dismissed the shareholders in attendance without explanation and asked them to reconvene in four hours.

Behind the scenes, besieged Chief Executive Dorrit Bern and her team negotiated with hedge funds Crescendo Partners and Myca Partners, owners of 9.3 million shares or a 7.9 percent stake.

The investors had been unhappy with the slumping stock of the retailer, the parent of Lane Bryant and other chains, and want to wrest control from the current eight-member board by nominating three of its own representatives.

The proxy fight had gotten uglier in the past weeks, with Charming Shoppes taking the unusual step of suing its own shareholders.

Talks to settle their dispute fell apart over the last few days: Charming Shoppes would agree to having one hedge fund representative on the board, plus add two of its own choosing. The activist group counter-offered with two of its people on the board.

Bern and her group held out until the very end, then met the hedge funds halfway -the group gets to nominate two of its people while Charming Shoppes can add the two industry veterans it wanted at a later date when the board expands to 11 members.

The retailer's choices are Richard Bennet III, former Vice Chairman of The May Department Stores Company, and Michael Goldstein, former Chairman and Chief Executive Officer of Toys 'R Us Inc.

At 2 p.m., the company said the shareholders meeting was rescheduled to June 26. All shareholders will get to vote on the negotiated slate of directors including two from the hedge funds. Before the settlement, shareholders were faced with two sets of directors: one from the company, one from the hedge funds.

Charming Shoppes plans to continue with proposed corporate governance changes, which takes away Bern's chairman title and leaves her as president and CEO, lets the "poison pill" anti-takeover plan lapse, and dismantles its classified board. In a classified board, only a few directors are up for election each year, making it tougher for outsiders to oust the entire board.

"Clearly, the contest is over," said Gayle Coolick, director of investor relations.

Shares of Charming Shoppes fell 16 cents to $5.12 on Thursday.