Financier Gets 3 Pic ‘N’ Save Board Seats : Retailing: David Batchelder has been trying for four months to gain control of the close-out merchandiser.
In a pact that may wrap up a four-month battle for control of Pic ‘N’ Save, the retailing chain on Friday granted seats on its board to La Jolla financier David H. Batchelder and two of his allies.
For Batchelder, a former chief strategist to corporate raider T. Boone Pickens Jr., the deal appears to solidify a partial victory in the fight that his investment group, Girard Partners, launched in April.
Analysts said the new board of Pic ‘N’ Save--which remains very profitable despite losing momentum the past two years--still will be hard-pressed to guide the retailer back to its past prosperity. Pic ‘N’ Save’s stock inched up 25 cents on Friday’s news, closing at $10.25 in over-the-counter trading.
Initially, Batchelder sought to buy Dominguez-based Pic ‘N’ Save through Girard Partners or to sell the retailer to the highest bidder. After Girard failed to secure financing for a buyout and no other solid bids emerged, Batchelder won a string of concessions.
Among other things, Batchelder is credited with instigating the ouster of Lewis B. Merrifield III as chairman, president and chief executive of Pic ‘N’ Save. Batchelder has pushed for a chief executive with strong experience in merchandising. Merrifield, a corporate securities lawyer by training, was a longtime Pic ‘N’ Save board member but had no other background in retailing before taking over as chief executive four years ago.
Merrifield already has relinquished the title of chairman, and he announced July 31 that he will quit as president and chief executive in January.
Pic ‘N’ Save in recent weeks agreed to two other Batchelder demands--a slowdown in the company’s profit-squeezing expansion and a stock buyback to try to boost the price of its shares. On Thursday, it unloaded its 14 money-losing Job Lot Pushcart stores in New York and New Jersey by returning them to their previous owners, New York-based Job Lot Trading Co.
In addition, the company on Friday said it would scrap two so-called poison pills that have shielded the company from a takeover attempt.
“We’ve gotten most of the way there,” Batchelder said. “The shareholders wanted to see some positive change, and I think they’ve seen that in large part.”
A spokesman for Pic ‘N’ Save called the agreement a true compromise and said “shareholders are the winners.” He also said Pic ‘N’ Save had already planned to make many of the changes sought by Batchelder.
The Batchelder allies named to the expanded, eight-member board are James J. Zehentbauer, a 28-year-old accountant who is a partner in Batchelder’s La Jolla firm, and Bill M. Thomas, who resigned as executive vice president and chief financial officer of Pic ‘N’ Save in 1987.
Thomas is believed to be the company’s biggest individual shareholder, with a 4% stake, and he was one of the five dissident nominees that Girard proposed for the board.
Batchelder also may have played a role in selecting another new board member, Peter Willmott, 52, who from 1984 to 1989 was chief executive of the Chicago-based department store chain Carson Pirie Scott & Co.
The four other directors--including Merrifield--are holdovers from Pic ‘N’ Save’s previous board, but Merrifield is barred from voting on his eventual replacement.
Also, sources say Arthur Frankel, a former Pic ‘N’ Save chief executive who was renamed chairman of the board last month, sides with Batchelder on some issues. He could not be reached for comment.
In exchange for the board seats, Girard agreed to drop a proxy fight to elect its slate of five board nominees at Pic ‘N’ Save’s Aug. 29 annual meeting.
Batchelder, whose group is Pic ‘N’ Save’s second-biggest shareholder with a 6.7% stake, conceded that he has been disappointed by his failure to arrange a buyout of Pic ‘N’ Save and by the company’s weak stock price. He acquired his Pic ‘N’ Save shares at an average price of $10.80, below Friday’s close.
Although Batchelder expressed confidence that the company could match its past success, analysts aren’t so sure. Paul S. Shain of the Milwaukee investment firm Robert W. Baird & Co. noted that the company is burdened with a costly new distribution center in New Orleans, which was built to support its rapid expansion.
If the company’s growth slows, he said, it will have to find another way to cover the costs of the facility. Pic ‘N’ Save also faces stiff competition from discounters and factory outlet stores.
“There’s a lot of question marks out there,” Shain said.
Pic ‘N’ is a chain of 176 stores specializing in close-out and other discount merchandise. It operates in California, Nevada, Arizona, Idaho, New Mexico, Colorado, Texas, Louisiana and Georgia.
Its earnings fell 34% to $30.9 million last year on sales of $475.2 million. Its after-tax return on sales was 6.5%, well above the industry standard of roughly 4%, but down from 13.1% when Merrifield became chief executive.
