Destination Maternity founder stepping down

Rebecca Matthias, a homegrown Philadelphia success story who turned maternity clothes into big business, is retiring as president of Destination Maternity Corp., and her husband is leaving as board chairman of the apparel empire they founded as expectant parents in 1982.

Matthias, 56, says her planned departure is the product of ongoing succession plans that gained urgency after her husband, Dan Matthias, 65, stepped down as chief executive officer of the $530 million company a year ago. That move, in September 2008, came just months after hedge fund investor Crescendo Partners, of New York, secured a seat on the company's board of directors.

News of the high-profile departures came in filings with regulators last week that outlined a number of changes giving Crescendo greater power on the board and a direct say over what executives get paid and how they perform.

In an interview, Rebecca Matthias said she and her husband were leaving of their own accord and were happy with the successors they had helped recruit who are now in place to run things.

"I think when Dan retired last year, that probably prompted me to start thinking about it," she said. "It just seemed like the right time now."

The changes are major ones. The Matthiases, who started the company formerly called Mothers Work out of their home, were in charge for almost three decades - long after taking the business to Wall Street in 1993.

They cashed out most of their stock in 2006 at near-record highs, though a year later share prices fell to levels that attracted the activist investors now flexing their muscles.

Dan Matthias will leave as Destination Maternity's board chairman in January by not seeking reelection at the annual shareholders' meeting. Later in 2010, his wife, who is president and chief creative officer, will vacate the executive offices the pair shared.

"For . . . decades, they were within three feet of each other on every decision made by the board," said Elam M. Hitchner III, who becomes board chairman next year, pending shareholder approval, under a recently finalized agreement.

Hitchner, a Philadelphia lawyer who joined the board in 1994 after helping to take the company public, said he "would not attribute" the departures to Crescendo's presence on the board.

"I think she's ready to move on," he said of Rebecca Matthias. "I'm sorry for the company, because she's very valuable. . . . But I'm happy for her."

Under the deal set forth last week, the company promised to support Crescendo's current board representative, Arnaud Ajdler, for reelection in January and appoint him chairman of the all-important compensation committee, which sets executive pay and evaluates how leaders are performing.

The deal also eliminated staggered terms - making it easier for shareholders to replace members annually - and adds one more seat to a board already expanded by one in August. Board members will total 11.

Crescendo, meanwhile, promised that through 2011 it would make no effort to oust incumbents, many of whom joined the Destination Maternity board years ago.

Ajdler declined to comment on behalf of the investment firm.

Crescendo's pledge will likely assuage any concerns the company may have about its intentions. In early 2008, at the same time it approached Destination Maternity for a board seat, Crescendo waged an acrimonious fight for power with another area retailer, Charming Shoppes Inc., of Bensalem, which owns Lane Bryant and Fashion Bug stores.

That retailer's fierce efforts to rebuff Crescendo ended with the eventual ouster of the chief executive and Crescendo's joining the board.

Several of the changes at Destination Maternity, including its decision to end the practice of having the chief executive also be board chairman, mimic those implemented at Charming Shoppes after Crescendo arrived on the scene.

Crescendo bought its 11.4 percent stake of Destination Maternity at prices ranging from $5 to $16 a share between November 2007 and November 2008. The company's stock now trades closer to $20, and profits have been growing over the last year.

Rebecca Matthias said she and her husband were deeply involved in the hiring of current CEO Ed Krell in 2002 as chief financial officer. She said she was pleased with Krell's performance since taking over the top job from her husband last year.

"We've kind of been in a transition for a while, I'd say," she said. "I feel that I'm going to be leaving the company in good hands."

The Matthiases began financially divesting in late 2006, when they disposed of the vast majority of their stock holdings. They sold $46 million worth of stock when shares were trading at $50 apiece, near historic highs.

It was quite a payday compared with the early years.

Rebecca Matthias was 28, pregnant with her first child, and frustrated by the lack of stylish maternity clothes on the market for working women when she launched Mothers Work 27 years ago with her husband's help.

Last year, the company announced a restructuring that included headquarters layoffs, store closings, store renamings, and a streamlining of its designer labels, which cater to women of all incomes.

Today, the company has 722 stores in the United States and Canada, designs its own clothing under the Pea in the Pod and Motherhood Maternity labels, and is expanding internationally.

"She's an astute businesswoman. She is very well-educated, and all of those really add up to her building this company," said Clara Henry, director of the fashion-design program at Philadelphia University.

Rebecca Matthias has degrees in civil engineering from Massachusetts Institute of Technology and architecture from Columbia University. Dan Matthias is an electrical engineer and computer whiz.

Under their leadership, the company grew and helped fill the void caused by the city's simultaneous loss of textile manufacturing overseas and fashion designers to New York.

Many employees are nurtured at local schools, Henry said.

"What companies like Destination Maternity have done for Philadelphia is revived it, and it's given . . . opportunities to many," said Henry, who was a consultant to the firm in the 1990s.

"I give kudos to her because she never left the city," she said of Rebecca Matthias.

When Matthias leaves the company in September, she will receive an unspecified cash bonus and a $4.2 million lump-sum retirement benefit. The company will retain her for two years more as a paid consultant.

With her three children now in their twenties, Matthias said she and her husband were looking forward to a slower lifestyle.

"We have a little farm in Lancaster County that we like to go to on the weekends," she said.

"I think that maybe new opportunities will present themselves, and I'll be able to find out if I'm good at doing anything else in this world."