F9 to LL Flooring Board: Stop the Charade! LL Flooring’s Letter and Presentation Are Filled With Distortions of the Facts and Dishonest Personal Attacks
$LL
LL Flooring’s Board Fails to Accept Responsibility for Company’s Abysmal Performance and Persistent Value Destruction
Bogus Attacks and Factual Distortions Appear to Demonstrate Board’s Efforts to Further Entrench Itself and Avoid Accountability
June 20, 2024
Dear Fellow LL Flooring Shareholders,
As LL Flooring’s largest shareholder owning approximately 8.85% of the Company’s stock, F9 Investments, LLC and our affiliates (“F9” or “We”) are disappointed by the Board of Directors’ (the “Board”) decision to resort to egregious, made-up personal attacks against Tom Sullivan and our other nominees. Moreover, we believe LL Flooring has distorted a number of facts in its investor presentation and letters to shareholders.
We believe the Board’s personal attacks and distortions, coupled with their stubborn adherence to a failed long-term strategy, highlight the Board’s utter lack of accountability for its own failures and further demonstrate that the Board is simply out of touch with the urgent realities facing LL Flooring. Shareholders should not be fooled by the Company’s desperate attempts to distract you from focusing on the dire current reality: the Board has overseen staggering operational losses and shareholder value destruction, and by the Company’s own admission there is substantial concern as to whether LL Flooring will be able to continue operations at all.
Yet in a profound display of either lack of awareness or self-denial, LL’s Board continues to insist its plan is working. We believe shareholders recognize it clearly is not. LL has vastly underperformed its peers in virtually every metric and over a sustained period. The facts are irrefutable.
While F9 consistently responds to and refutes the Company’s mischaracterizations of our nominees’ credentials and plan, the Board has resorted to peddling outrageous personal attacks and bogus distortions of the facts rather than responding directly to F9’s critiques – because they cannot. The strategic missteps and value erosion that have occurred under their watch are undeniable, so the Board continues to promote a false narrative that only further demonstrates to us the lengths its members will go to entrench themselves and avoid accountability for their failures. Accordingly, we would like to set the record straight regarding a few of the Board’s most egregious claims:
TOM SULLIVAN IS NOT SEEKING TO FORCE A SALE OF THE COMPANY TO HIMSELF
LL Flooring’s assertion otherwise is patently absurd. If F9 is successful in this proxy contest, our nominees would constitute only 1/3 of the Board and would be powerless to “force” anything. Furthermore, were F9 to make a new offer for the Company, any F9 nominees serving on the Board would recuse themselves from consideration of the proposed transaction. Most importantly, any transaction to any buyer would be subject to shareholder approval.
F9 withdrew its 2023 bid for the Company as LL Flooring’s financial condition was rapidly deteriorating and it became clear that the Board’s so-called strategic review and sale process was disingenuous. Today, we continue to believe that upgrading LL Flooring’s Board with experienced directors, who bring a track record of success in the flooring industry, represents the best path forward to stabilize and grow the Company and restore long-term value for all shareholders.
OUR NOMINEES’ INTENTIONS ARE SIMPLE: TO HELP STABILIZE LL FLOORING’S BUSINESS AND POSITION
THE COMPANY FOR LONG-TERM GROWTH, PROFITABILITY, AND SHAREHOLDER VALUE CREATION
The Board’s claim that F9’s nominees are conflicted due to their roles at Cabinets to Go has no merit. To be clear, while Cabinets to Go – a successful cabinets retail chain and F9 portfolio company – does sell flooring, it is not its primary business and, as previously disclosed to LL Flooring, flooring sales are relatively minimal and well below the legal definition of a competitor that would preclude our nominees from Board service.
In just one example of the Board’s partial recounting of the history between the Company and F9, its materials reference Mr. Sullivan’s involvement in litigation between Cabinets to Go and LL Flooring but fail to mention that the lawsuit ended in a settlement in which Cabinets to Go was permitted to sell flooring anywhere and LL Flooring paid F9 Properties, a division of F9 Investments, $300,000 in damages. Further, the Board’s claim that Ms. Witter “led the lawsuit” against Cabinets to Go as the Chief Legal Officer of LL Flooring (then Lumber Liquidators) is completely false. The litigation was filed in 2019; Ms. Witter left the Company in 2017 and had no involvement whatsoever.
Each of F9’s nominees bring deep knowledge of the flooring space and related industries, substantial corporate governance experience, and strong track records of creating value for companies – all of which we believe will be additive to the Board. We believe our nominees’ combined skillset is vitally important and necessary to stabilize the Company and bring immediate and long-term value to LL Flooring.
SHAMELESS PERSONAL ATTACKS AGAINST MR. SULLIVAN ARE UNTRUE AND HYPOCRITICAL
In its materials, the Board criticizes the Company’s performance during Mr. Sullivan’s tenure, yet fails to mention that two of the three incumbent directors up for re-election this year were also on the Board during that same period. The Company also refuses to acknowledge that under the leadership of the current Chair of the Board, Nancy Taylor, LL Flooring’s stock price has plummeted a whopping 98.5%.
Since the start of 2024 alone, the Company’s stock has dropped by 58%, and over the last three years it has fallen by 93%. At the time of Tom’s departure from the business, LL Flooring had a market capitalization of approximately $430 million; today, the Company’s market capitalization is less than $50 million. If the Board believes Mr. Sullivan’s track record at the Company is “highly questionable”, how should it characterize its current members’ abysmal performance or their fitness to drive long-term value for shareholders?
The Board’s other personal attacks against Mr. Sullivan reek of desperation. Its mudslinging reference to other litigation involving Mr. Sullivan fails to reflect that the action was ultimately dismissed, and that Mr. Sullivan was acknowledged as both a victim and a creditor. Further, the Board’s insinuation that Mr. Sullivan was ‘timing’ his trades to ‘whipsaw’ other investors has no basis in reality. As any rational person would, Mr. Sullivan took profits in 2019, after the first time LL Flooring declined to meaningfully engage with him regarding a business combination.
IT’S NOT THE ECONOMY – IT’S THE BOARD
Rather than take responsibility for its own strategic failures, the Board attempts to blame market conditions for the Company’s rapidly declining value. However, it fails to reckon honestly with the Company’s staggering underperformance relative to its peers. The facts are simple: if you invested $100 in LL Flooring five years ago, it would be worth just $15 today, while the same investment in the Company’s proxy peer group would be worth $196.
The Board notes that its strategic plan in part relies on waiting to “capitalize on improving market conditions” and “anticipated industry tailwinds”. Meanwhile, in the near term the Company plans to enter into a sale-leaseback commitment for its primary asset – LL Flooring’s Sandston, VA distribution center – in a shortsighted attempt to generate cash that will likely increase expenses and destroy value for shareholders in the long run. The Board’s misguided decision to simply wait out macroeconomic conditions shows a disturbing lack of urgency, vision, and confidence in the Company’s value proposition, and reflects the dire need for change at the Board level to protect what remains of LL Flooring’s value.
UNEVEN, SHAM STRATEGIC REVIEW PROCESS HAS RESULTED IN PLUMMETING OFFERS
LL Flooring’s Board claims it has been conducting a “thorough review’ of strategic alternatives to maximize shareholder value. However, despite receiving fully financed offers from F9 to buy LL Flooring at premium valuations far exceeding the Company’s current value and during a period of declining operating performance, the Company refused to engage constructively with F9 and created a deeply uneven playing field for F9 versus other bidders.
In 2023, F9 offered several times to enter into an NDA, but the Company refused to consider F9’s proposed standstill provisions that the Company later publicly disclosed it provided to at least one other bidder. In fact, the Board sought to have F9 sign an NDA which would have prevented F9 from making an offer for the Company during the standstill period that may have been in the best interests of all of the shareholders while granting the Company the right to terminate the NDA or refuse to provide due diligence. Indeed, the Board’s disingenuous “strategic review” and sale process have been characterized by a disturbing pattern of premium bids rejected, falling bid prices, limited transparency, and an uneven playing field for bidders – all despite the Board’s insistence that the bids received “significantly undervalued” the Company.
With your vote, we will be one step closer to ensuring LL Flooring is on a better path to creating lasting shareholder value and getting the Company back in the groove.
We thank you for your support.
Sincerely,
Tom Sullivan Jason Delves Jill Witter
Solomon Partners Securities, LLC is serving as F9’s financial advisor and Dentons US LLP is serving as its legal advisor.
Source:
https://www.sec.gov/Archives/edgar/data/1396033/000119312524163989/d801878ddfan14a.htm