ValueAct Clears Hurdle to Nominating a Director at Citigroup

(Bloomberg) -- ValueAct Capital Management‘s representative on the board of Alliance Data Systems Corp. resigned, clearing up a conflict that had prevented the activist investor from nominating a director at Citigroup Inc.

Alliance Data said Thursday that Kelly Barlow, ValueAct’s representative on the board, resigned effective immediately and that the board would be reduced to eight directors as a result.

Barlow’s position on the board was a key reason behind ValueAct’s decision not to seek a seat on the board of Citigroup in January. Alliance Data competes against Citigroup in co-branded and private-label credit cards, meaning ValueAct can’t have representatives on the boards of both companies. The hedge fund, which owns a 1.4% stake in Citigroup, instead struck an agreement that allows the bank to share certain confidential information with ValueAct about its strategy, governance and planning.

In a joint statement at the time, ValueAct said it would likely propose a candidate for the board once the conflict involving Alliance Data was cleared up. Citigroup, in turn, said it would consider the request, following the usual process for director candidates. Their arrangement expires in December.

“We have a productive and constructive relationship with Mike Corbat and his team under the terms of our relationship agreement,” ValueAct spokeswoman Allison Bennington said in an email Friday, referring to Citigroup’s chief executive officer. “It is premature at this point to speculate how the relationship may evolve in the future.”

Jennifer Lowney, a spokeswoman for Citigroup, declined to comment.

The information-sharing arrangement was a first for ValueAct, which prefers to have directors on the boards of companies where it holds large stakes, and typically keeps its investments for three to five years once it gets a seat.

Shares Rise

ValueAct, run by Jeff Ubben, first disclosed its stake in Citigroup in May 2018, arguing the bank was undervalued and misunderstood by the market. Total shareholder returns since then have totaled about 9%, according to data compiled by Bloomberg. But Citigroup shares have rallied 39% this year, making it the second-best performer in the 24-company KBW Bank Index, which has advanced 21%.

The bank has been rearranging many of its top executives in the past year, and on Thursday elevated Jane Fraser to president, its second-highest rank, and put her in charge of consumer banking globally. Earlier in the year, Citigroup promoted Paco Ybarra to lead its other largest division, the institutional clients group.

Citigroup has been eliminating hundreds of jobs in its trading division as it seeks to improve the profitability of the business, and has been investing in its treasury and trade solutions unit, which generates steadier income by providing banking services to large, multinational corporations.

In the consumer division, the lender has been seeking to offer online checking and savings accounts to its millions of credit-card customers. The effort has started to bear fruit, with Citigroup adding $4 billion in digital deposits this year.

Alliance Data Chairman Rob Minicucci said Thursday that Barlow informed the company he wanted to spend more time managing a ValueAct fund that focuses on social and environmental problems.

“Kelly has been a significant contributor to the board,” Minicucci said on a conference call with analysts. “He’s going to devote more time to his new role at ValueAct, so clearly, we are grateful for his service and wish him the best.”

To contact the reporters on this story: Scott Deveau in New York at sdeveau2@bloomberg.net;Jenny Surane in New York at jsurane4@bloomberg.net

To contact the editors responsible for this story: Liana Baker at lbaker75@bloomberg.net, ;Michael J. Moore at mmoore55@bloomberg.net, Daniel Taub, Matthew Monks

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