Wet Seal mulls shareholder plea to sell itself

A major Wet Seal investor is calling for the retailer to offer itself up for sale. (Alexander Gallardo / Los Angeles Times / July 24, 2012)

A major shareholder of Wet Seal Inc. is urging the struggling Orange County teen retailer to sell itself – an option the company seems to be considering.

On Tuesday, Foothill Ranch-based Wet Seal issued a statement saying it “has engaged in a series of discussions” with Clinton Group Inc. The day before, the hedge fund manager and disgruntled investor had sent Wet Seal a letter bluntly stating that its “right next step is … to be sold.”

Earlier Monday, the company said it fired its chief executive, Susan McGalla, after less than a year on the job. The retailer slashed its outlook for the current quarter and said its sales have been plunging this month.

Clinton Group, whose accounts collectively own 4.25% of Wet Seal’s stock, implored the retailer’s board to return cash to shareholders. The company’s stock has fallen 80% over the last decade and “shareholder patience has grown thin,” according to the letter.

McGalla’s termination was “a good first step” – her “record of under-performance was stark and unacceptable to us and other shareholders,” wrote Joseph A. De Perio, senior portfolio manager at Clinton.

But the next chief executive will be Wet Seal’s fourth in five years and will likely bring another change in strategy. Shareholders “simply cannot wait … that path is simply too uncertain,” De Perio wrote.

Other stressed retailers have given themselves up as acquisitions to promising effect, De Perio pointed out, noting recent transactions involving Collective Brands, Charming Shoppes and Talbot’s. Those sales came at a 111%, 89% and 76% premium, respectively – which in Wet Seal’s case could price the company at $5 to $8 a share, he said.

Clinton Group sent an earlier letter on June 15 urging similar action. Now, the retailer seems to be paying attention.

“Wet Seal is committed to maintaining an active dialog with its shareholders and, as always, will continue to consider ways to maximize value for all stockholders," the company said in its statement.

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