Pitney Bowes came out swinging at investor Hestia Capital, which has started a proxy fight aimed at reshuffling its board and management, accusing the firm of having a vague strategy for the parcel shipping and cross-border firm, and lacking understanding of how to run a logistics business.
In a nine-page letter urging shareholders to vote for its slate of directors – which includes Hestia recommendation Katie May, former CEO of ShippingEasy – Pitney Bowes reiterated its view that the venture firm has mischaracterized aspects of its operations and is not dealing in good faith.
The company said it has in fact refreshed its board, with six new members joining and eight resigning over the past five years. It added the current and prospective directors are up to the task of supporting the company’s “strategic transformation.”
“By contrast, we believe Hestia’s nominees, with the exception of Katie May, lack the necessary experience and skills to execute Pitney Bowes’ strategy and enhance long-term value for shareholders, and their election would be detrimental to the success of the company,” the letter stated.
With Hestia’s slate in place, Pitney Bowes noted, the average board tenure would drop to 0.9 years, with only one director serving more than three years, and 7 of 9 joining in 2023.
Pitney Bowes said its executives and board have met with Hestia more than 20 times and interviewed four of the director candidates it proposed.
“Hestia was never serious about resolving this, as their first letter to our board was sent with a leading shareholder activist law firm copied,” the company said. Hestia, which has built up an 8.7% stake in Pitney Bowes, has denied the activist label, saying it only uses that approach when warranted in limited instances.
Regarding Hestia’s attack on Pitney Bowes’ performance over the past decade-plus that Marc Lautenbach has been CEO, the company noted several things: reducing debt by $1.7 billion, eliminating several hundred million in expenses, returning $1.5 billion to shareholders, investing $2.6 billion in its businesses and divesting $2.1 billion of non-core, slower-growth assets. The latter includes the 2022 sale of Borderfree to Global-e for $100 million in cash, about a quarter of its acquisition price.
“The company is now positioned for long-term success, as shown in revenue CAGR of -8.6% from 2007-2012, before Mr. Lautenbach became CEO, to 4.9% from 2017-2022,” the letter stated.
Pitney Bowes’ share price has gone from $10.68 in mid-December 2012, when Lautenbach took over, to $3.72 at today’s close. For the fourth quarter of 2022, the company reported revenue of $909 million, down 8% from 2021, with $49 million in adjusted EBIT, up from $47 million in the prior year.
The company attacked Hestia’s position on its global ecommerce unit, built from the 2015 Borderfree acquisition, saying it veered from calling it a valuable asset to scale, to a niche business that should be sold. This revealed “a lack of understanding of the business.”
“Hestia’s strategy is vague at best, with no path to profitable growth,” Pitney Bowes wrote. “Shrinking the business to become ‘niche’ may have short-term cost savings but will forgo the operating leverage the company has built.”
Hestia also misunderstood its domestic parcel shipping and returns business, augmented with the 2017 acquisition of Newgistics, wrongly observing it was trying to compete with the duopoly in the enterprise space.
“We are not trying to become a UPS or FedEx as our targeted strategy has enabled us to create a competitive product and scale in the middle-market retail segment,” the company wrote.
Instead, Pitney Bowes stated, it works with the U.S. Postal Service as its primary last-mile delivery partner, enabling it to “compete effectively against larger businesses within our targeted market.”
Lastly, Pitney Bowes took issue with Hestia’s contention that it missed out on targeted acquisitions like ShippingEasy and Endicia, both picked up by larger competitor Stamps.com. This model, the company said, has “proven to be unsustainable.”
“With the changes in USPS’ approach to these markets, the value of these properties has declined dramatically. … If Hestia understood the clients who use these shipping user interfaces, they would know the number of packages they ship are too small for them to become feeders into the domestic parcel logistics business.”