Dollar Tree Stores, Inc. (B): Deja Vu All over Again

By Richardson, Woodrow D. | Business Case Journal, Fall-Winter 2009 | Go to article overview

Dollar Tree Stores, Inc. (B): Deja Vu All over Again


Richardson, Woodrow D., Business Case Journal


This case was prepared by Woodrow D. Richardson from Mississippi State University. The views presented here are those of the case author and do not necessarily reflect the views of the Society for Case Research. The author's views are based on his own professional judgments. Copyright (c) 2010 by the Society for Case Research and the authors. No part of the work may be reproduced or used in any form or by any means without the written permission of the Society for Case Research

In the spring of 2008, Jack Herman opened his mail box and found a packet from Dollar Tree, Inc. announcing the annual meeting. Also in the packet was information about the most recent proposal from California Public Employees Retirement System (CalPERS) requesting that stockholders support annual board elections rather than the staggered board terms Dollar Tree had employed for years. Jack had not supported this proposal previously and really could not think of a reason to vote in favor of CalPERS' ideas at this time. Jack was tired of reading the same claims yet again. The packet included Proposal No. 11 which stated:

RESOLVED, that the shareowners of Dollar Tree Stores, Inc. ("Company") ask that the Company, in compliance with applicable law, take the steps necessary to reorganize the Board of Directors into one class subject to election each year. The implementation of this proposal should not affect the unexpired terms of directors elected to the board at or prior to the 2008 annual meeting. (Schedule 14A, Proxy Statement, p. 47).

In addition to the CalPERS proposal to alter the board structure of Dollar Tree, the pension fund announced in a June 2, 2008 press release that it would withhold votes from Macon Brock, Jr. (Dollar Tree's founder and Chairman of the Board since 2001) and two additional directors standing for reelection at the June 19, 2008 annual meeting. A press release asserted that Dollar Tree had underperformed the Russell 3000 index by 47.4 percent and the Russell Peer Index by 13.9 percent from April 2004-2008. (CalPERS Press Release, June 2, 2008)

Jack thought back to 2007, when CalPERS placed Dollar Tree on its annual Focus List of underperforming companies whose governance practices needed changing. CalPERS had previously put forth a proposal at the 2007 meeting, to remove the supermajority voting requirement related to governance changes. Some companies required a ballot measure receive only 51% of the outstanding shares to pass while those with supermajorities required a higher threshold, some as high as 80% of the shares outstanding. In Dollar Tree's case the supermajority requirement was 66%. The 2007, CalPERS' proposal received a majority of votes, but did not reach the two-thirds required. Dollar Tree was not on the 2008 Focus List released by CalPERS and Dollar Tree management put forth its own proposal to eliminate the supermajority voting requirement for the 2008 meeting.

CalPERS' 2008 Proposal

CalPERS' supporting statement accompanying Proposal No. 11--Shareholder Proposal to Eliminate Classified Board is found in Table 1 below.

Dollar Tree's Response

For the fiscal year ending February 2, 2008, Dollar Tree generated sales of $4.242 billion from its 3,411 stores resulting in net income of $201.3 million versus $3.969 billion in sales and $192 million in net income in 2007. From February 2007 to February 2008 Dollar Tree's stock price fluctuated from a low of $20.72 to a high of $45.98. Table 2 contains financial data for Dollar Tree from 2005-2008.

Bob Sasser, CEO and President of Dollar Tree, responded to the CalPERS proposal in a letter to shareholders dated May 29, 2008 found in Table 3.

The Debate

CalPERS was not the only critic of staggered board terms. Carl Icahn called the "hottest investor in America" by Fortune magazine, referred to staggered boards as "absurd" (Tully, 2007). Staggered terms required hostile takeover bidders to win seats in two elections to gain control of the board. …

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