Dive Brief:

• Francesca’s last week announced that its board has unanimously adopted a shareholders rights plan that is commonly known as a "poison pill" because it’s useful against a hostile takeover from investors accumulating a major ownership stake on the open market.
• The company on July 31 declared a dividend of one preferred share purchase right on each outstanding share of common stock that entitles the holder to buy one five-thousandth of a share of new preferred stock for $18, according to a company press release.
• The new rights will become exercisable 10 business days after a person or group becomes the beneficial owner of 15% or more of the company’s outstanding common stock, or announces a tender offer for that much, per the release. Investment firm Cross River Capital, which has been accumulating shares in recent weeks, appears to already own more than that and wouldn't be subject to the provision.

Dive Insight:

Plans like the one instituted by Francesca's board, which didn't require shareholder approval, allow investors, (other than an investor or group grabbing a stake of 15% or more following this move), to buy preferred shares at a discount, which dilutes the putative acquirer's stake and makes a takeover more difficult.

They are rarely actually triggered, however, and are often instituted as a bargaining chip, according to Alon Kapen, partner at law firm Farrell Fritz.

"The Board adopted the Rights Plan to deter any entity, person or group from gaining control of the Company through the open market or private transactions without paying an appropriate control premium or offering fair and adequate value to all stockholders," the company said in its release. "It is intended to enable the stockholders of the Company to realize the value of their investment in the Company, ensure that all stockholders receive fair treatment, and provide the Board and stockholders with adequate time to make informed decisions. The Rights Plan is not intended to deter offers that are fair and otherwise in the best interests of the Company’s stockholders."

But various entities affiliated with Cross River Capital in recent weeks had already accumulated a 21.8% stake before the move, and wouldn't be subject to the shareholder rights carve-out described by Francesca's board in Securities and Exchange Commission filings and its press release. 

"Cross River is basically grandfathered in and so appears to have avoided the poison," Kapen told Retail Dive in an email. Francesca's didn't immediately return Retail Dive's request for comment on that situation. 

"Cross River" includes Cross River Capital Management LLC, Cross River Management LLC, Cross River Partners LP, and Richard Murphy, who is the managing member of both Cross River Capital and Cross River Management, according to an SEC filing. In its most recent filing Monday, Cross River said the group believes that Francesca's financial performance and shareholder value "could be improved," that it has been in contact with the board and that it "may continue to be" regarding steps the company could take to improve shareholder value, including "improving the Board’s composition." Cross River also said it may communicate with shareholders themselves regarding the company's options, including a sale.

Francesca's shares Tuesday morning plummeted to below $3 per share, following a reverse stock split July 1 meant to spare the company from being de-listed. Per Nasdaq rules, a company must maintain a stock price of $1 per share or above for 30 consecutive business days. The move had its intended effect, immediately boosting the per-share price from 44 cents to $4.71 on its first day, but the price has steadily declined since.

The company's troubles aren't confined to Wall Street. Net sales in the first quarter fell 13% to $87.1 million as comps also dropped 13%, mostly thanks to declines in traffic and conversion rates. Loss from operations widened to $9.7 million from $4.5 million in the prior-year quarter. The retailer in June said it plans to shutter at least 30 stores in coming months, after closing eight in the first quarter. Francesca's did open three and will open one this year that was already in the works, but has slowed a previously planned expansion in order to right its operations.

The company's chief financial officer left last month, and in June longtime Chairman Richard Kunes said he will leave in January. Early in the year the retailer shook up its executive team, including replacing its CEO, and announced it was looking for a suitor.