Marathon Settles With e.l.f. for Say on Pay

Mario Cibelli’s activist investment fund reached a deal with the budget cosmetics company that could reduce bonuses for executives at the same time that it gives investors an early advisory vote on executive compensation.

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Budget cosmetics company e.l.f. Beauty Inc. (ELF) on Thursday, July 2, reached a deal with Marathon Partners Equity Management LLC’s Mario Cibelli that included the addition of a new director, a say on pay vote and tougher restrictions on the company’s executives equity incentive award plan.

The agreement emerged after Cibelli in May launched a director fight seeking three board positions, including one for himself, at e.l.f.’s 2020 annual meeting, scheduled for Aug. 27.

As part of the deal, e.l.f. agreed to expand its board by one seat to nine and include Lori Keith, portfolio manager of Parnassus Investments, a $5 billion mid capitalization fund, as an independent director. In the company’s release, Cibelli said Marathon introduced Keith to e.l.f.’s board.

With Keith’s addition, six of nine e.l.f. Beauty directors will be women, representing more than 60% of the board. According to relationship mapping service BoardEx, a sister company to The Deal, e.l.f. is one of 19 public companies headquartered in the U.S. with 60% or higher women on board.

E.l.f. also agreed to have a non-binding vote on its executive pay packages at its annual meeting this year. The company had been temporarily exempted from an advisory “say on pay” vote requirement that most public corporations must adhere to because its public offering in 2016 had been categorized as an emerging growth IPO under the JOBS Act.

E.l.f. agreed to reduce the maximum amount of shares it can issue to executives under its 2016 equity incentive award plan to 2% from 4% of outstanding shares. In essence, the agreement could reduce the total amount of equity bonus payouts for executives because it reduces the amount of shares that go into the equity pool for executive grants.

Cibelli had said he was surprised by what e.l.f. is paying its executive team, including CEO Tarang Amin, despite the company’s stagnant performance.

Cibelli had been agitating at e.l.f. since 2018, but it is likely that he didn’t decide to launch a contest until this year because a major investor and backer of company management, TPG Capital LP, had held a large stake in the business until recently. TPG cut its stake in the cosmetics company from nearly 30% in 2017 to the approximate 7% stake it now owns.

The Deal reported in November that Marathon was considering a director contest at e.l.f. in 2020.

Although Cibelli previously called on e.l.f. to consider selling itself, in May he pushed for a board subcommittee that would focus on reviewing expenses while considering alternatives to improve shareholder value.

The beauty company has had returns of 15% in 2020, but its shares are down 12% over the past three years, according to FactSet Research Systems Inc. The company’s stock shot up to $25 a share shortly after its IPO but traded lately at around $18.46 a share.

Morgan Stanley & Co. LLC served as financial advisor to e.l.f. and Latham & Watkins LLP partners Tad Freese and Joshua Dubofsky as well as Tiffany Campion, senior attorney for takeover defense and shareholder activism, provided legal advice to the company.

Olshan Frome Wolosky LLP partner Andrew Freedman is serving as counsel to Marathon.

Follow Ronald Orol on Twitter and LinkedIn.


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