NEW CEO INTELLIGENCE
SEPTEMBER 2015
A RESEARCH PRODUCT OF
MARCH INTELLIGENCE RESEARCH LLP
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Tempur Sealy International, Inc. (NYSE: TPX)
EXTERNAL APPOINTMENT
On September 4, 2015, Tempur Sealy International, Inc. appointed Scott L. Thompson as CEO and President of the company effective September 8, 2015.
WHAT WE LIKE
1. Mr. Thompson’s tenure with Dollar Thrifty Automotive Group, Inc.
Dollar Thrifty Automotive Group, Inc. through its Dollar Rent A Car and Thrifty Car Rental brands, has been serving value conscious leisure and business travelers since 1950.
Mr. Thompson served as CEO from October 13, 2008 to November 2012. During his tenure:
a) Sale of Dollar Thrifty Automotive Group
In November 2012, Dollar Thrifty Automotive Group, Inc. was purchased by Hertz Global Holdings, Inc. for $2.3 billion.
b) Turnaround
The company’s share price increased from a few cents in October 2008 to $87.4 per share in 2012.
In 2011, Dollar Thrifty reported the best year in the company’s history, with $303.2 million in Corporate Adjusted EBITDA, compared to a $2.3 million loss in 2008. In 2011, the company generated best high net income in its history, with $159.5 million.
2. Mr. Thompson’s tenure withGroup 1 Automotive, Inc.
Group 1 Automotive, Inc. is an operator in the automotive retail industry. Mr. Thompson co-founded Group 1 Automotive and served as CFO and Treasurer from 1996 to 2004.
During his tenure:
The company completed its IPO in November 1997 at $12 per share.
The company’s share price increased from $12 per share in November 1997 to $36 per share in March 2004.
3. Jana Partners’ comment about Mr. Thompson
Jana Partners, an activist fund, made the following remark about Mr. Thompson when they suggested Mr. Thompson for the CEO’s job at Hertz Global Holdings, Inc.
Mr. Thompson has repeatedly demonstrated his ability in managing fleet costs. As CEO of Dollar Thrifty and a founder and CFO of Group 1 Automotive, he had extensive experience negotiating both retail and wholesale automotive purchases from all the major worldwide OEMs.
Mr. Thompson took Dollar Thrifty’s annual fleet costs from the highest among its publicly-traded peers to the lowest, despite Dollar Thrifty being the smallest company in this group.
Few executives in any industry have generated as much shareholder value creation as CEO as Mr. Thompson did at Dollar Thrifty, where he generated an annualized return of approximately 200%.
To read more, click the below link:
http://www.sec.gov/Archives/edgar/data/1159159/000090266414004233/p14-2158exhb.htm 4. Others
OUR CONCERN
Irrelevant experience
Tempur Sealy International is a mattress company. Mr. Thompson, newly appointed CEO, has more than 10 years experience in the auto industry. Mr. Thompson has no operational experience in the mattress industry.
RANKING
TRACK RECORD OF CEO: STRONG
SIGNIFICANT SITUATION:
YES
BASIC INFORMATION
Market capitalization: $4.4 billion
Business
Tempur Sealy International, Inc. develops, manufactures and markets mattresses, foundations, pillows and other products. The company’s brand portfolio includes many of the most highly recognized brands in the industry, including Tempur®, Tempur-Pedic®, Sealy®, Sealy
Posturepedic®, Optimum™ and Stearns & Foster®. Insider Ownership
All directors and executive officers as a group hold 5.63%.
Recent management and board changes
W. Timothy Yaggi, who was acting as interim CEO, will resume his position as Executive Vice President and COO, effective September 8, 2015.
On July 30, 2015, Dale Williams resigned as EVP and CFO and was succeeded by Barry Hytinen.
On May 30, 2015, Jon Luther was appointed to the Board.
On May 11, 2015, the company appointed Usman Nabi of H Partners Management, LLC to the Board as a new independent Director.
On May 08, 2015 (2015 AGM), the company’s shareholders voted against three out of eleven Directors and subsequently they resigned.
Value Investors
The following value investors held the company’s shares as of 2nd quarter of 2015:
Barrow Hanley Mewhinney & Strauss, Fisher Asset Management, Gotham Asset Management, H Partners Management, Point72 Asset Management, Starboard Value LP, Tudor Investment Corp.
RESEARCH
Exit of CEO due to the proxy battle by H Partners Management, LLC
In February 2015, H Partners (holds 9.9%) stated that it had lost confidence in CEO, Mark Sarvary and described Mr. Sarvary’s numerous execution errors and record of value destruction.
H Partners demanded that the Board fire Mr. Sarvary.
In March 2015, H Partners filed a preliminary proxy statement urging the company’s
shareholders to vote against the company’s three (out of eleven) directors at the 2015 AGM.
On May 08, 2015, the company’s shareholders voted against the above said three directors and subsequently the three directors resigned.
On May 11, 2015, Mr. Sarvary resigned as CEO of the company and H Partners entered into an agreement with the company. As per the agreement, W. Timothy Yaggi (company’s COO) would serve as interim CEO and the company would appoint two individuals recommended by H Partners to the Board.
The company also agreed to appoint a permanent CEO who would be accepted by H Partners’ nominees.
Link
Letter to the Board
February 17, 2015:
http://www.sec.gov/Archives/edgar/data/1206264/000092189515000412/ex991to13da110304002_021715.pdf March 26, 2015:
http://www.sec.gov/Archives/edgar/data/1206264/000092189515000759/ex991to13da410304002_032615.pdf
Slides describing the company’s underperformance
March 30, 2015: http://www.sec.gov/Archives/edgar/data/1206264/000092189515000758/0000921895-15-000758-index.htm Presentation April 7, 2015: http://www.sec.gov/Archives/edgar/data/1206264/000092189515000889/ex991dfan14a10304002a_040715.pdf Letter to shareholders April 17, 2015: http://www.sec.gov/Archives/edgar/data/1206264/000092189515000976/dfan14a10304002_04172015.htm Proxy Recommendation April 22, 2015: http://www.sec.gov/Archives/edgar/data/1206264/000092189515001005/dfan14a10304002_04222015.htm April 27, 2015: http://www.sec.gov/Archives/edgar/data/1206264/000092189515001060/dfan14a10304002_04272015.htm Chieftain Capital Management, Inc.’s active presence
On February 19, 2015, Chieftain Capital Management, Inc. (5.8%) sent a letter to the Board
indicating its support for H Partners’ proposals regarding the leadership and future of the company. It supported an immediate change of CEO and the Board.
Exit of Mark Sarvary
Mr. Sarvary served as CEO since August 2008. On May 11, 2015, Mr. Sarvary resigned as CEO, effective May 12, 2015.
During his tenure:
The company’s share price increased from $9.59 per share on August 4, 2008 to $87.26 per share on April 18, 2012 and subsequently crashed to $21.02 per share in June 2012. After that, the company’s share price gradually increased to $59.82 per share in May 2015.
Revenue increased from $831 million in 2009 to $2.9 billion in 2014 primarily due to acquisitions. Net income during the same period was volatile.
Exit of interim CEO
RESEARCH
Scott ThompsonScott Thompson, age 56, previously served as Chief Executive Officer and President of Dollar Thrifty Automotive Group, Inc. until it was purchased by Hertz Global Holdings, Inc. in 2012. Prior to serving as CEO and President, Mr. Thompson was Senior Executive Vice President and Chief Financial Officer of Dollar Thrifty. Prior to joining Dollar Thrifty in 2008, Mr. Thompson was a consultant to private equity firms, and was a founder of Group 1 Automotive, Inc., a NYSE and Fortune 500 company, serving as its Senior Executive Vice President, Chief Financial Officer and Treasurer. Mr. Thompson presently serves as a member of the Board of Directors for Asbury Automotive Group, Inc., Houston Wire and Cable Co. and Conn’s, Inc. Mr. Thompson earned a Bachelor of Business Administration degree from Stephen F. Austin State University in Nacogdoches, Texas, and began his career with a national accounting firm.
1. Mr. Thompson’s tenure from 2012 to 2015
We have no information on the full time work experience of Mr. Thompson for the period from November 2012 to August 2015. During the same period, Mr. Thompson has been serving the following companies as a Director:
Mr. Thompson has been a Director of Asbury Automotive Group, Inc. since January 7, 2015 and Houston Wire & Cable Company since July 19, 2006.
Mr. Thompson has been an Independent Director at Conns, Inc., since June 2004.
2. Mr. Thompson’s tenure with Dollar Thrifty Automotive Group, Inc.
Dollar Thrifty Automotive Group, Inc. through its Dollar Rent A Car and Thrifty Car Rental brands, has been serving value conscious leisure and business travelers since 1950.
Job titles:
October 2008 to 2012: CEO
May 23, 2008 to October 2008: CFO and Senior EVP
Mr. Thompson served as CEO from October 13, 2008 to November 2012. Highlights of Dollar Thrifty’s turnaround
In 2011, Dollar Thrifty reported the best year in the company’s history, with $303.2 million in Corporate Adjusted EBITDA, compared to a $2.3 million loss in 2008. In 2011, the company generated best high net income in its history, with $159.5 million.
Dollar Thrifty stock has gone from below $1 per share in October 2008 to $87.4 per share in November 2012.
In November 2012, Dollar Thrifty Automotive Group, Inc. was purchased by Hertz Global Holdings, Inc. for $2.3 billion.
Suggested further readings:
http://www.tulsaworld.com/business/ceo-turns-dollar-thrifty-into-envy-of-industry/article_8147bb33-1e02-599f-91d3-e2a1b7e74a2e.html
Financial performance analysis:
The company’s revenue remained flat at $1.5 billion and net income increased from $45 million in 2009 to $159 million in 2011.
($ in millions) 2008 2009 2010 2011
Revenue 1,697 1,546 1,537 1,548
Income (loss) before income taxes (456) 81 221 261
Net income (loss) (346) 45 131 159
Cash and cash equivalents 229 400 463 508
Cash and cash equivalents - required minimum
balance 0 100 100 0
Debt and other obligations 2,488 1,727 1,397 1,399
Year Ended December 31
($ in thousands) 2008 2009 2010 2011
Average revenue per day 43.82 48.11 48.55 47.15
Monthly average revenue per
vehicle 1,119 1,192 1,200 1,154
Total rental locations (US and
Canada) 741 613 605 586
Notes:
Revenue:
In 2011, revenue increased primarily due to a 3.8% increase in the number of rental days.
In 2010, the company’s revenue per day increased 0.9%, which was offset by a decrease in rental days of 0.9%.
In 2009, the company’s revenues were negatively impacted due to challenging economic conditions, coupled with the company’s efforts in closing unprofitable company owned stores.
Operating expenses
In 2011, operating expenses decreased due to lower depreciation rates per vehicle. Net interest expense decreased primarily due to lower average vehicle debt and lower interest rates.
In 2010, the company had lower vehicle depreciation and lease charges due to gains on sales of used vehicles, lower fleet levels and lower depreciation rates per vehicle.
In 2009, the company recorded a non-cash charge of $2.6 million relating to long-lived asset impairments. The company had lower vehicle depreciation and lease charges due to lower fleet levels, in addition to a reduction in the depreciation rate per vehicle.
Share repurchase:
During the nine months ended September 30, 2012, the company repurchased approximately $129.1 million worth of shares.
Others No Dividend No Acquisitions
Jana Partners’ comment about Mr. Thompson
Mr. Thompson has repeatedly demonstrated his ability in managing fleet costs. As CEO of Dollar Thrifty and a founder and CFO of Group 1 Automotive, he had extensive experience negotiating both retail and wholesale automotive purchases from all the major worldwide OEMs.
Mr. Thompson took Dollar Thrifty’s annual fleet costs from the highest among its publicly-traded peers to the lowest, despite Dollar Thrifty being the smallest company in this group.
Few executives in any industry have generated as much shareholder value creation as CEO as Mr. Thompson did at Dollar Thrifty, where he generated an annualized return of approximately 200%.
Source:
http://www.sec.gov/Archives/edgar/data/1159159/000090266414004233/p14-2158exhb.htm
3. Mr. Thompson’s tenure from 2004 to 2008
Mr. Thompson was a consultant to private equity firms from 2005 until May 2008. Note: We have no details regarding his role as a consultant.
4. Mr. Thompson’s tenure withGroup 1 Automotive, Inc.
Group 1 Automotive, Inc. is an operator in the automotive retail industry. Mr. Thompson co-founded Group 1 Automotive.
Job titles
December 1996 to March 31, 2004: CFO and Treasurer.
December 1996 to February 2002: SVP.
February 2002 to March 31, 2004: EVP.
Mr. Thompson served as CFO and Treasurer from 1996 to 2004. During his tenure:
The company completed its IPO in November 1997 at $12 per share.
The company’s share price increased from $12 per share in November 1997 to $36 per share in March 2004.
Revenue increased from $281 million in 1996 to $4.5 billion in 2003. During the same period, net income increased from $5 million to $76 million.
Financials ($ in millions) 1996 1997 1998 1999 2000 2001 2002 2003 Revenue 281 403 1,630 2,508 3,586 3,996 4,214 4,518 Operating income 8 10 52 85 119 132 139 149 Net income 5 5 20 33 40 55 67 76 Total Long-term Debt 0.3 9 45 114 140 95 82 231
* Year ended December 31
5. Mr. Thompson’s tenure with KSA Industries, Inc.
KSA Industries is a privately held company with $1 billion in revenues. Mr. Thompson served as EVP of Operations and Finance for KSA Industries, Inc. from 1991 to 1996.
Mr. Thompson claims that during his tenure at KSA Industries, he served as VP and Director of three Houston-area automobile dealerships with aggregate annual revenues of $180 million.
Mr. Thompson’s tenure as Director
Mr. Thompson has been a Director of Asbury Automotive Group, Inc. since January 7, 2015 and Houston Wire & Cable Company since July 19, 2006.
Mr. Thompson has been an Independent Director at Conns, Inc., since June 2004.
Mr. Thompson served as an Independent Director of UAP Holding Corp. from March 2007 to May 2008.
Other Experience
Mr. Thompson held various positions with Arthur Andersen,LLP from 1980 to 1991. Compensation:
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