by Activist shareholder Doug Bergeron calls dividend a distraction and a deflection
DANBURY, Conn. — By now you have probably read or heard of Ethan Allen’s “special cash dividend” of $3 per share announced late last week, a decision framed by the company as a “disciplined capital allocation strategy” and evidence of a “focus on creating sustainable value for all shareholders,” according to the press release from the company.
You have also probably read or heard of “activist” shareholder Doug Bergeron’s response to this dividend, a response that calls the payout a “transparent attempt to deflect attention from mounting calls for change ahead of a contested election,” according to his own press release.
Both come on the heels of Ethan Allen’s fourth quarter and fiscal year numbers ending June 30 and, subsequently, the proposal from Bergeron to replace Farooq Kathwari and Ethan Allen’s board of directors because of “stagnant growth” and an “urgent need to revitalize” the company, in Bergeron’s words.
Kathwari is president, CEO and chairman of the 94-year-old company.
The timing of the special dividend is indeed interesting, coming as it does two weeks since Bergeron’s campaign to force a leadership change went public and less than three months before Ethan Allen’s next board election likely in early November. The fight over Ethan Allen’s future also made headlines at Bloomberg TV, which gave equal time to Bergeron and Kathwari.
It’s also worth noting, as Bergeron has, that the payout will net Kathwari, who has 8% of Ethan Allen’s shares, an estimated $6 million. With a 5% stake himself, Bergeron can expect $3.75 million of the approximately $76 million total dividend payout. The company has returned more than $402 million to shareholders through cash dividends over the past decade, including more than $46 million in fiscal 2026 and $50 million in fiscal 2025.
As the Bloomberg TV coverage shows, age has become an issue in this contest. Kathwari is 82, and he has led Ethan Allen for 38 years. The company has been profitable each and every year since going public in 1993, and it has methodically acquired independently owned Ethan Allen design galleries. Of its 171 retail design centers in North America, 141 now are company-operated.
This is not enough, Bergeron has argued.
“While revenue continues to shrink, market share has eroded and the Company remains behind in the digital, omnichannel and brand capabilities required to compete in today’s highly fragmented and increasingly omnichannel home furnishings market,” he stated in his proposal to replace the board. “This is not simply a matter of spending more; it is a matter of execution.”
Round II of the proxy fight began with the $3/share dividend last Wednesday and Bergeron’s near-immediate take on that dividend.
To make sense of the dispute, as a big fan of crime mystery fiction and in particular noir, I imagined a telephone conversation between Kathwari and Bergeron. While this conversation is entirely fictional, even satirical, I believe it animates the competing visions for Ethan Allen while acknowledging the increasingly personal nature of the contest. Somewhere in Danbury, Connecticut, a phone rings.
Kathwari: (Picking up on the fourth ring, sipping tea) Good morning, Doug. How can I help you this morning?
Bergeron: I’m looking at your press release — $3 a share? “Reaffirms strong financial position?” “Sustainable shareholder value?” Do you know what this reads like to me?
Kathwari: A gift? A smart thing to do with no debt on the balance sheet?
Bergeron: No, I was thinking more like a smoke bomb. Toss cash in the air to send everyone coughing and grabbing at bills, and by the time the air clears, you’ve slipped out the back door with the company still running exactly the way it’s been running for the last 38 years.
Kathwari: Doug, it’s delivering value to shareholders, a group that includes you. This is called “discipline.”
Bergeron: I see a legacy furniture company that’s been shrinking for 20 years handing out cash so that nobody asks why it’s been shrinking for the last 20 years. Ethan Allen is a melting ice cube, and handing out cash isn’t a strategy. Oh, and I heard what you told Bloomberg TV. You think I look 95 years old?
Kathwari: My hair is still black, Doug. You also heard me tell Bloomberg that we doubled our product assortment in five years and cut the size of our design centers by 50%. You must have heard me tell Bloomberg this because I said it three different times in an eight-minute interview.
Bergeron: Who’s acting 95 years old now? You said it three times? While you have been bragging about making Ethan Allen smaller, revenue has been shrinking right along with the design centers. You can double the menu items at a restaurant in which nobody’s dining and it simply means twice as many dishes no one is ordering. It’s like Yogi Berra said: “People are staying away from that place in crowds!”
Kathwari: (sipping, unbothered) Why does everyone keep comparing Ethan Allen to the Yankees? We increased marketing spend by 13%, and we did this two years running. We are getting customers through the doors.
Bergeron: This 13% is off a base so low it was basically a rounding error. You increased a whisper into a slightly louder whisper. Meanwhile, competitors are shouting online and owning all the digital spaces.
Kathwari: This is rich coming from a man who showed up with a slate of five strangers and a slick website.
Bergeron: They are not strangers, Farooq. They are people who have actually worked in retail this decade. And you’re one to talk of boards. Yours shrunk itself from six seats to five back in January, and I only found out about it two weeks after I nominated my own slate. And only because my lawyer had to drag it out of your lawyer!
Kathwari (long pause) The timing was . . . a coincidence.
Bergeron: So is gravity, Farooq, and yet things keep falling down.
Kathwari: Doug, my name is practically on the building. Show a little respect. I own 8% of this company.
Bergeron: Oh my God, that’s why you’re collecting $6 million of this “shareholder-friendly” dividend yourself! Funny how the smoke bomb clears just enough for you to see your own slice of the pie! What are you going to spend it on? Your farm? Your boat?
Kathwari: (sighs, sets down the tea cup) Doug, this brand has survived recessions, wars, the internet. It will survive you, and so will I.
Bergeron: You have hit on the issue here, Farooq, because I am not trying to kill Ethan Allen. I am trying to stop it from going over the cliff while you sit around calling it “resilient.” There is a difference between steering the ship and just refusing to let go of the wheel.
Kathwari: We will see whose name is on the proxy card people mail back.
Bergeron: Looking forward to it. Enjoy your tea. (Click.)
As a writer, I am fascinated that the future of Ethan Allen Interiors will largely be the result of words, of persuasion. Can Bergeron persuade enough shareholders to join forces with him and his proposed board? Conversely, will Kathwari be able to persuade enough shareholders to stay the course?
It’s clear to me that for Kathwari to survive this latest challenge, he will need to articulate with specificity a strategy to stop the melt, meaningfully engage with consumers online, and deploy its substantial resources, cash and otherwise, to increasing sales and profitability. The moment both for home furnishings as an industry and Ethan Allen as an erstwhile style leader calls for more than recycled bromides about “technology, marketing, manufacturing and talent.”
A middle ground could have Kathwari remaining as chairman but relinquishing the responsibilities of president and CEO, much as Pasquale Natuzzi did at Natuzzi in 2021. If this proxy fight gets any more personal, however, a peaceful transfer becomes less likely. Regardless, Bergeron’s call for a succession plan seems reasonable, as does more accountability and governance, not less.
The share price opened at $23.39 yesterday. The company has a one-year low of $18.28 and a one-year high of $31.41, with a 50-day moving average of $22.50. Ethan Allen Interiors has a market capitalization of $596.3 million.
