In a blistering letter, Appaloosa Management’s David Tepper accused Whirlpool (NYSE: WHR) of “destroying hundreds of millions of dollars of shareholder value” through a dilutive recapitalization strategy that he claims prioritizes management’s job security over investor returns. Will Tepper’s push be successful or will shareholders continue to suffer?
Performance Under Fire
Tepper’s critique arrives as Boardroom Alpha data paints a bleak picture of the company’s trajectory. Despite a long-standing “World’s Most Admired Companies” reputation, the financial reality for shareholders has been one of consistent losses:
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1-Year TSR: -37% (underperforming the S&P by 53 percentage points).
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CEO Track Record: Under Marc R. Bitzer’s 8-year, D-rated tenure, shareholders have lost a staggering -52% (8.5% annualized).
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Board Issues: The company’s 14-person board is made of low-rated directors at both Whirlpool and their outside directorships.
Governance and Activist Risk
The Boardroom Alpha Activist Risk score for Whirlpool has spiked to 91 / 100, a clear signal that the company is ripe for the kind of public campaign Tepper just launched.
The board’s “C-” average director rating reflects poor outcomes for the company across every director’s tenure. More worryingly almost every director also has either a poor track record as a director at other companies or no other public company board experience at all. So, shareholders will wonder what confidence they should have in a board that shows little signs of being able to drive company outperformance.
CEO Marc Bitzer’s CEO Hot Seat score, a measure of the probability of dismissal in the next 6 months, is also elevated. Though given he is also the Chair and the board’s faults, the reality is that the risk is much lower than it should be.
Shareholders have, to a limited degree, voted their discontent with the board with consistently lower support for directors CEO and Chair Marc Bitzer and several other directors. While to date this hasn’t reached a level that would really worry the directors, Tepper’s push will immediately raise the pressure in the boardroom.
Investor Take Away
In a recent post on Beretta’s proxy fight with Sturm, Ruger & Co. we said that “the data is the activist’s best advocate.” We’d make the same case here again. Shareholders have seen massive losses across the CEO’s tenure, a board that hasn’t been able to right the ship, and no change in sight.
For shareholders to be saved, there are really only two options at this point: a radical change in leadership or in strategy. The question is: will Appaloosa’s push be enough of a catalyst to make it happen.