NOWHERE TO RUN... Premier Foods boss faces bid to oust him
PREMIER Foods chief executive Gavin Darby could be forced to step down amid mounting pressure from shareholders calling for his head.
City sources said activist investor Oasis Management is increasingly confident it can raise enough support to force him out.
A majority vote by shareholders against Darby would be a stunning result for Oasis, the Hong Kong hedge fund that argues the Mr Kipling owner is going nowhere under Darby’s leadership.
It would also be a rare public assertion of shareholder power.
AGM revolts against senior executives are exceptionally rare, with shareholders fearful of the disruption a sudden departure may cause. But last week Oasis stepped up its campaign against the Premier Foods boss, saying the company should sell dried foods brand Batchelors to reduce its debt.
It has argued that the firm, which owns Mr Kipling cakes, Bisto, Oxo and Angel Delight, has suffered under Darby’s leadership with the share price down by a third since he took over in 2013.
Oasis has even set up a website, circulated among investors, calling for him to be ‘removed’ and replaced with finance director Alastair Murray. The website also says: ‘Enough is enough. We are tired of the excuses. Shareholders deserve better.’
One source said last night that Oasis was confident of achieving ‘half the vote or more’ – the amount needed to unseat him.
Its fierce campaign to oust Darby, who raised thousands for GroceryAid running in the Barcelona Marathon last March, is the culmination of several years’ work by Oasis, which has a nine per cent stake in the FTSE 250 food giant and had a seat on the board until March. Premier Foods has suffered in recent years from the rise in supermarket private labels and discounters chipping away at food producers’ margins – as well as weak economic growth and its huge debt pile.
But supporters of Darby say that the company has developed profitable new products in recent years under his tenure. It has a deal with Japanese food giant Nissin, famous for its instant noodles and itself a shareholder supportive of Darby. Together they developed the version of Batchelors Super Noodles in a pot.
It also makes Cadbury cakes under licence from Cadbury owner Mondelez, and hopes to develop a range of cakes based on famous brands like Crunchie, Caramel and Oreo. Darby’s strategy could be thrown overboard if Oasis gets its way, but much hinges on precisely how many shareholders back the activist’s recommendation. One source close to Premier Foods this weekend said the suggestion that Oasis could win the vote ‘flies in the face of the facts’.
It has won the support of major shareholder advisers. The two biggest two – Glass Lewis and ISS – have both lined up behind Darby, though the hedge fund believes some passive investors may vote against their advice. Nissin holds nearly 20 per cent of the shares and the proxy advisers could easily swing the votes of as much as a quarter of the remaining stock.
In a report issued to its clients that offered only muted support for Darby, ISS said: ‘Gavin Darby’s public ambitions for the company seem to have been based on overly optimistic assumptions.
‘The current strategy might be debatable and the track record is not comforting, but there is not enough evidence of a better alternative.’
It called the company’s operating performance ‘minimally acceptable’, adding: ‘The current strategy seems to be based on extending the current situation until market conditions improve.
‘The company’s improvements in terms of revenue growth or margin improvement implicit in the current plan, by themselves, do not seem enough in the mid-term to significantly address its financial constraints.’
Oasis is set to spend the next week talking to investors around the world to persuade them to join its campaign. Shareholders will deliver their verdict on July 18 at the company’s annual general meeting, on the South Bank of the Thames in London.
The smart money is betting that even if Darby gets the votes he needs to stay on, a major vote against of 20 to 30 per cent would be enough to push him out.
The margin of victory will be critical in determining whether Darby’s strategy lives on following his exit – and how graceful his departure might be.