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Aria Partners responds to "hostile opportunists" on Christopher & Banks board

Wednesday, July 11, 2012
Opalesque Industry Update: Aria Partners, which owns 4% of Christopher & Banks Corp. shares, has responded to the board of directors regarding its refusal to negotiate with Aria about its offer of $1.75 a share, as well as its decision to adopt a poison pill to impede a possible takeover of the company. Aria continues to urge Christopher & Banks’ board to put a sale process in place.

“We are simply trying to protect shareholders from the company’s current board of directors,” stated Edward Latessa, partner, Aria Partners. “It is mindboggling that as the value of the company continues to deteriorate and the losses continue to mount, that this board would continue to collect directors’ fees that amount to more than 100% of the company’s earnings. Further, by adopting the poison pill measure, it seems that they’ll stop at nothing to ensure the continuation of the status quo.”

The full text of Aria’s response letter to Paul L. Snyder, the non-executive chairman of Christopher & Banks, follows:

Mr. Paul L. Snyder
Christopher & Banks Corp.
2400 Xenium Lane
Plymouth, MN 55441

Dear Mr. Snyder:

We would like to respond to Christopher & Banks’ recent board vote to adopt a poison pill and the “Just Say No Defense.” Of course we believe that the action the board has taken is not in the best interests of the shareholders, but to say just that would be far too cliché. Rather, we prefer to get more granular.

To begin, poison pills are designed to protect shareholders from hostile opportunists. In this case, the hostile opportunists are the board of Christopher & Banks, not us. When your stock trades at $1 per share and someone offers you $1.75 per share, they are not the enemy. The market seemed to agree with this sentiment given its positive reaction when the news of our proposal became public. We are simply trying to protect the shareholders from the board.

In terms of the hostile activity at Christopher & Banks, we would submit that since 2009, your Lead Director, Ann Jones, has received more than 100% of the company’s earnings in director fees. That’s more than $750,000 while lording over an 83% drop in share price. Similarly, you yourself have also received more than 100% of Christopher & Banks’ earnings in director fees. It reminds us of the farcical plot of “The Producers” where Bialystock and Bloom scheme to get rich by overselling interests in a Broadway flop.

Next, let’s examine your thesis that a turnaround is underway and the company is better off pursuing its current strategy rather than entertaining our offer. This is the same board that signed off on Larry Barenbaum’s strategy (the former CEO) of raising average unit prices by articulating the merchandise. This course of action proved to be a disaster. How are we to have any confidence that this same board is able to implement a new strategy which, to date, has similarly failed to turn things around?

Frankly, the board’s credibility when it comes to setting strategy is worthless based on its record thus far, and we do not believe that your accounting background is helpful to this cause. Is the company really taking its fashion direction from an accountant? Has it ever occurred to you that you are out of your element? Since you joined the board, the stock is down 89%. If you were a contestant on “Project Runway,” you would have been laughed off, but somehow you continue to wield influence in the boardroom of a publicly traded fashion company.

Adhering to script, this “stick with the current strategy” response was expected, but in your case it’s just not believable. If there really is so much upside in the stock, why aren’t any members of the company’s board, who have been paid millions, using some of that money to buy shares? Have any bought a single share of stock since the current strategy was announced to shareholders? We don’t believe any have and find this curious since clearly the “current strategy” must then be worth more than the 75% return our offer represents. If the board really believed in the upside the current strategy holds, why would any of you pass up the opportunity to invest now? Alas, the company’s response to our offer sounds like good tough talk, but rings hollow with your shareholders and is simply not supported by the facts.

Here are the facts: Christopher & Banks is not financially stable. Its financial condition is deteriorating rapidly. We believe you need to act and urge you to put this company up for sale. You’ve engaged credible bankers and lawyers. Put them to work running a sale process and let the market decide who should manage and own this company. This is what we and the rest of your shareholders demand.

Sincerely,
Edward Latessa
Partner
Aria Partners

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