Crown Crafts in Proxy Dustup

James Mammarella, August 13, 2007

In the latest give-and-take between infant and juvenile products manufacturer Crown Crafts Inc. and 14.6% shareholder Wynnefield Group, each party rolled out its own proxy pals as proof of broader support for its side.

On Aug. 2, Wynnefield said that the corporate proxy advisor firms Institutional Shareholder Services Inc. (ISS) and Proxy Governance Inc. (PGI) advised that Crown Crafts shareholders should vote for the Wynnefield "Gold" proxy slate for the Crown Crafts board of directors.

Wynnefield quoted ISS as saying in part, "We believe the inclusion of one dissident nominee at the board would add value to deliberations on strategic alternatives, while not being disruptive to the board functioning." Wynnefield has proposed two directors; ISS supports electing one of them, Frederick Wasserman.

Wynnefield also quoted PGI: "We believe that Wynnefield's nominees will bring diversity and fresh thinking to the board and, as such, we support their election."

Crown Crafts then sent its own letter to stockholders, noting that proxy research and advisory firm Glass, Lewis & Co. (GLC) recommended that they vote for the Crown Crafts slate of directors, as listed on the "White" proxy card.

In the letter, Crown Crafts quoted GLC: "Overall, we find the Dissident's plan for improvement to be lacking. While the Dissident states its intention to improve corporate governance practices and deliver 'improved financial results,' the Dissident fails to disclose substantive details describing how it plans to improve such results."

Crown Crafts also quoted from the ISS memo, which credited current management's "successful turnaround," pointing out "gross margin has increased from 22.6 to 25.1% and its operating margin from 7.3 to 10.9% from FY2003 through FY2007." ISS said, "management should be given credit for the company's financial restructuring and streamlining operations."

The two combatants havetraded proposals and counterproposals about Wynnefield's urging of an expanded board, a new nominating and governance committee, and a new compensation plan for non-employee directors. This was in the midst of contentions about each other's integrity, business acumen, and fitness to lead — spiced by pledges to forgo remuneration, and simmered in offended sensibilities and wounded pride.

The underlying issue is who will control the company — the current Crown Crafts management that has steered the manufacturer through a stressful but apparently fruitful turnaround, or a set of directors with several fresh faces from Wynnefield, which insists it can do better still.

The proxy voting will decide the issue; the Crown Crafts annual stockholder meeting is to be held on Aug. 14.

Crown Crafts on June 20 reported fiscal 2007 net income of $7.6 million, down 5% from $8.0 million in 2006. Net sales for fiscal 2007 were $72.0 million, compared to $72.6 million the year prior.

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