By Svea Herbst-Bayliss
(Reuters) - Monro Inc, an operator of U.S. car service and tire centers, is under pressure from an activist investor to improve returns and change operations, people familiar with the matter said on Tuesday.
Hedge fund Ides Capital has reached out to Monro's board and followed up with letters, urging the company to make changes that also include environmental, social and governance (ESG) improvements like diversifying its workforce and boardroom, according to the sources.
Monro's lack of diversity, especially in the boardroom, and broader ESG issues have held back the company, the hedge fund argued, according to the sources.
As recently as last month the hedge fund again expressed its concerns to Monro's board about performance. Monro is valued at $1.5 billion.
Monro's stock climbed 7.83% on Tuesday to close at $48.35.
Ides declined to comment.
Monro said it interacts regularly with shareholders and appreciates their input. "Promoting a diverse organization is a key pillar of our company and a priority for our Board of Directors. Our diversity and inclusion efforts are ongoing and will be an important factor as we formalize our environmental, social and governance program to better inform our shareholders of our initiatives," a spokeswoman said in a statement.
Monro's eight-member board had been largely male and white and had served an average of 17 years, far longer than the Standard & Poor's 500 companies' average of 11 years. In August it added its first-ever racially diverse director, which changed that average. The board now has two female directors.
The hedge fund has asked that Monro report its diversity statistics and ESG metrics publicly, according to the sources.
Since January, the company's stock price has tumbled 43% and in August its chief executive officer, Brett Ponton, left, creating fresh worries for investors.
Monro's board has been looking for a new CEO since Ponton resigned to join $6.7 billion ServiceMaster Company as CEO.
Dianne McKeever co-founded Ides in 2015 with Rob Longnecker, and won success when companies like AstroNova and Boingo Wireless (NASDAQ:WIFI) diversified their boards. Earlier this year, Chuck Royce, a pioneer in small-cap investing, and Stride Capital Group, a seed investor, made strategic investments in Ides.
Ides' campaign at Monro coincides with a wave of consolidation in the auto parts and repair business. Meritage (NYSE:MTH) acquired Les Schwab Tire Centers earlier this year, while Golden Gate Capital bought Express Oil in 2017 and Mavis in 2018. Last week Mavis said it would buy Town Fair Tire Centers.
Monro is one of the last sizable targets in the industry and the sources said Ides has encouraged Monro to explore all alternatives to maximize shareholder value as it also searches for a new CEO.