Stock Spirits activist investor mounts fresh boardroom coup

01 February, 2021

An activist investor in Stock Spirits has once again called for chairman David Maloney and senior independent director John Nicholson to be removed.

Western Gate, which has a 10% stake in the spirits supplier, said the duo could “no longer demonstrate objective judgement or constructively challenge the Board and the executive management”.

This has resulted in “consistent impairments, a malfunctioning M&A strategy and shareholder value destruction”.

Maloney and Nicholson survived a boardroom coup from Western Gate in February 2019. The long-term shareholder slammed them for failing to provide a clear growth strategy and a lack of acquisitions.

Shareholders voted down the attempt to oust them in 2019, but now Western Gate has announced its intention to vote to remove them once more.

It said it is concerned that Stock Spirits has announced impairments of “a significant size” for the third year in a row. The impairments, in relative terms were 34%, 26% and 51% of EBITDA for 2018, 2019 and 2020 respectively, while the Italian market suffered in those years.

Western Gate said that, in 2017, Stock Spirits acquired a 25% stake in the Dublin Liberties Distillery, Quintessential Brands Group’s Irish Whiskey division, for a cash consideration of up to €18.3m, but the carrying value is now only €2.1m.

The Italian segment, which includes the 2019 acquisition of Distillerie Franciacorta SpA, has been in severe decline since 2014 with adjusted EBITDA falling from €8.1M to €2M, according to Western Gate.

It also noted that Maloney and Nicholson have both been on the board since 2013, with no succession plan articulated.

Western Santos is headed by Portuguese retail magnate Luis Amaral. Francisco Santos, a director at the firm, railed against the “lack of leadership at board level” and said that the impairments “reflect a malfunctioning M&A strategy”. 

“We will be voting against the reappointment of the chairman and senior independent director and we urge the company to commence the search for replacements immediately,” he added. “Stock Spirits needs to learn from the mistakes it has made in the past so it can have a positive future delivering value for all stakeholders.”

Western Gate is calling for an executive search firm to be hired in order to put plans in place for “an orderly succession”. By that point, Maloney and Nicholson would have served for nine years, which is the maximum advised by the UK Corporate Governance Code.

“In our experience and given our strong track record of campaigning for change at Stock Spirits, it takes the board at least one year to realise that our suggestions are indeed correct,” said Western Gate. “If you look at Western Gate’s track record of success in improving shareholder value at Stock Spirits you will see that in December 2019, Western Gate called for the payment of a special dividend of €0.1219 per ordinary share by Stock Spirits. It took until February 2021 for Stock Spirits to pay a special dividend of €0.11.

“In 2016, we called for a reduction in the head office costs which at the time equated to 31.2% of the Company’s reported FY15 EBITDA. Two years later Stock Spirits cut head office costs by 20%. 

“Also, in 2016, we called for the removal of the CEO, Chris Heath, and proposed two new non-executive directors. This campaign coincided with a turnaround in operational performance and we once again congratulate Miroslaw Stachowicz, chief executive, and Paul Bal, chief financial officer, who have overseen a significant improvement in the operational performance of the business.

“Western Gate believes that now is the time to vote against the chairman and the senior independent director and initiate the search for replacements. Stock Spirits’ track record of proactively delivering shareholder value is woeful and a change at the top will deliver the necessary changes urgently needed to the board to ensure its independence and that management are held to account.”

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