Marcato likely to pull off win in proxy war with Deckers

By Svea Herbst-Bayliss and Gayathree Ganesan

(Reuters) - Deckers Outdoor Corp shareholders looked set to hand three board seats to Marcato Capital Management at the UGG boots maker's annual meeting on Thursday, capping a months-long bitter proxy contest.

Half a dozen investors interviewed by Reuters said they will or already have voted for Marcato, while two people familiar with votes cast by dozens of other shareholders said the hedge fund was leading Deckers in the proxy fight.

"There is no argument for not having a shareholder on the board in order to hold management accountable," said Ken Squire, a portfolio manager at 13D Activist Fund, which owns 0.51 percent of Deckers' outstanding shares.

"I would be surprised if Marcato does not win."

Deckers has put up for reelection all nine incumbents. Marcato is targeting to remove three of the company's longest serving board members: John Perenchio, John Gibbons and Karyn Barsa.

"The current board has demonstrated that they're not proactive enough in their corporate guidance," a Deckers investor who is throwing his weight behind Marcato told Reuters.

The San Francisco-based hedge fund, which owns 8.5 percent of the Goleta, California-based company, first disclosed a stake in February and has since run an aggressive campaign where it initially sought to replace the entire board.

Marcato has criticized Deckers' retail strategy and pushed the management into considering a sale, cutting costs and improving its capital allocation.

"Deckers was ripe for this kind of attack," said one investor who is not permitted to discuss holdings publicly.

"Margins were decreasing and management was not really being held accountable for the money they were losing."

A sale did not materialize, but the company said it would buy back $400 million in shares through 2020, a move several investors said would help boost the stock price considerably within the next year.

Deckers' shares have risen 71.4 percent since Marcato disclosed a stake in the company on Feb. 8 this year. In the 12 months before that, the stock had slipped nearly 6 percent.

Marcato and Deckers declined to comment and pointed Reuters to publicly available documents.

PRAGMATIST MCGUIRE

Deckers has lost some of its premium cachet in the past few years as department store chains including Macy's Inc, which sells the company's shoes, have discounted heavily to reduce inventory.

The company is heavily dependent on the UGG brand, whose boots sell mainly through winter months.

"UGG is a great brand and they've had issues with the wholesale and other things," said Laura McGonagle, portfolio manager at Deckers investor Trillium Asset Management LLC, which owns 0.10 percent of Deckers' outstanding shares.

"It can't hurt to have new people who are from a retail and branding background to come in and provide a fresh perspective."

To be sure, the election could turn on votes from large index funds which, like other investors, still have hours to submit or change votes.

The two sides could settle as well, an option they have considered in the past.

"As the meeting date approaches (the index funds) can have a meaningful influence on the outcome, especially if they encourage a settlement of some sort, essentially saying to both sides 'work it out guys'," said Michael Fein, head of U.S. operations at shareholder advisory firm Kingsdale Advisors, which is not directly involved in the Deckers contest.

If Marcato wins, it would mark the second proxy victory this year for the fund's 41-year old portfolio manager Mick McGuire, who got his start in the activist world at billionaire investor William Ackman's firm.

McGuire has established his credentials as a savvy negotiator by gradually dialing back demands to replace Deckers' board after large proxy advisory firms said it was a risky strategy.

"Mick is a pragmatist who often looks for solutions with management. He wants to be known as a top-notch investor and not just another corporate raider who puts a company in play," one Deckers investor said.

McGuire finally settled for three nominees: Steve Fuller, former marketing chief of apparel brand L.L. Bean, Anne Waterman, who once led Michael Kors Holdings Ltd's communication team, and Kirsten Feldman, who previously advised Morgan Stanley on retail investment banking.

Still, with roughly 24 hours to go before one of the season's most hotly contested proxy fights is decided on Thursday, the race remains tight.

(Reporting by Gayathree Ganesan in Bengaluru and Svea Herbst-Bayliss in Boston; Writing by Sayantani Ghosh; editing by Saumyadeb Chakrabarty)

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