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Forget about the upcoming presidential primaries; it’s already election night at Nautilus (NYSE:NLS) – and the early exit polls favor the challenger.

Shareholders met Tuesday to settle a proxy fight between an activist hedge fund and the fitness equipment company’s incumbent board.

Late Tuesday, Sherborne Investors, LP (which owns 25% of the shares outstanding) declared victory in its proxy fight at Nautilus. The hedge fund claims it won four of seven board seats (which will effectively grant control of the company).

Nautilus Chairman & CEO Robert Falcone has yet to concede defeat.

Early reports provided subtle hints of a Sherborne victory with Falcone being quoted as saying, “Our proxy service says it's close, but we just don’t know at this time” – and even more ominously, “It’s a dead heat.” Meanwhile, Sherborne’s representative was “optimistic” and claimed shareholders were “fairly supportive”.

News reports indicated the shareholders in attendance were dissatisfied with both parties’ presentations, with one shareholder saying, “Nothing was said here that hasn’t been said before.” In a series of press releases leading up to the meeting, Nautilus had been particularly expansive in its criticism of Sherborne which has been successful in several proxy fights, but hasn’t always had success in creating long-term shareholder value (in one case, that’s putting it very mildly).

Most shareholders I talked with in the lead up to the election had a low opinion of Sherborne and an even lower opinion of the board.

If the preliminary results hold, the greatest casualty of the fight will be Robert Falcone who was made interim CEO in August and (non-interim) CEO in October. His predecessor Greg Hammann stepped down in August. Falcone was then the company’s lead independent director.

Sherborne has already stated that Falcone will be removed as CEO. Technically, Falcone will retain his board seat. However, everyone’s expectation is for a quick and unceremonious resignation if the early results hold.

Falcone can’t be accused of inaction during his four month tenure, as this article makes clear:

Falcone has made several significant moves in his short tenure, including laying off 9 percent of the company's work force and cutting expenses by more than $10 million annually. He's also implemented an inventory reduction plan that should pump $20 million into the company's coffers. Falcone also continues to look for a buyer for the company's Pearl Izumi fitness apparel business.

Shares of Nautilus have traded between $18.63 and $4.31 this year. During yesterday's trading session (before Sherborne claimed victory), shares of NLS were up $0.97 or 17.32% to close at $6.57.

It will be interesting to see how the votes were distributed, as a couple shareholder advisory services had recommended electing some (but not all) of Sherborne’s nominees.

Note: No one at Nautilus has conceded defeat and it will be a couple weeks before any actual votes have been counted and verified. However, because most shareholders vote their proxies in advance, Sherborne’s proxy solicitation firm should know whether the proposals passed. As late as tonight, a Nautilus spokesman was still calling Sherborne’s declaration of victory, “highly speculative.”

Regardless, it’s a rare example of shareholder democracy – a close, contested election between two parties with opposing views. Of course, in corporate politics as in presidential politics, a good process doesn’t guarantee good results.

Source: Nautilus: Activist Hedge Fund Declares Victory In Proxy Fight