Browning West says Gildan board cannot be trusted to oversee sale
A U.S. investor who is seeking to replace a majority of the directors at Gildan Activewear Inc. says the current board cannot be trusted to oversee a sale process for the company.
Gildan, a Montreal-based clothing manufacturer that also owns the American Apparel and Comfort Colors brands, confirmed Tuesday that it has received a “non-binding expression of interest” from a potential purchaser it did not name.
In response, the company’s board has formed a special committee of independent directors to consider the proposal and contacted other potential bidders.
But Browning West, which holds about five per cent of the company’s shares, said the sale process underscores its message to shareholders that meaningful change at the board is required immediately, even before the company’s annual meeting in May.
“Since the onset of our campaign, we have maintained that Gildan is a high-quality business with significant latent earnings power and strong value creation potential under the right board and management,” Browning West said in a Wednesday statement.
“We are naturally concerned that the board has initiated a sale process in order to avoid accountability following continuous and growing support for Browning West’s calls for significant board reconstitution.”
Browning West’s gripes with Gildan’s board and management began late last year, when the company announced co-founder and then-CEO Glenn Chamandy would be replaced by Vince Tyra.
Tyra’s resume included time spent as CEO of clothing company Alphabroder and president of Fruit of the Loom before it was sold to Berkshire Hathaway.
Browning West along with Gildan’s largest shareholder Jarislowsky Fraser and Turtle Creek Asset Management Inc. branded the decision to oust Chamandy, who they saw as an effective leader, as a “grievous error.”
Gildan’s board fired back, criticizing Chamandy’s longterm strategy and his fixation on “high-risk and highly dilutive multi-billion-dollar acquisitions that would shift Gildan away from its core area of manufacturing experience.”
Shareholders, who want to replace members of Gildan’s board in order to reinstate Chamandy, were focused on the company’s May 28 meeting, when Gildan revealed Tuesday that the company was open to a sale.
Browning West said it has heard the sale price being bandied around is about $42 US per share, “which effectively represents no premium.”
“To put this low price in context, if Glenn Chamandy had not been terminated and the stock had simply performed in line with the most relevant index, it would be worth approximately $42 US per share today,” the shareholder said.
Gildan declined to comment on Browning West’s statement.
The company’s share price rose almost four per cent
Wednesday morning to $52.66.
Martin Landry, managing director at investment brokerage firm Stifel, said the odds of Gildan landing a sale are “low” because shareholders supporting Chamandy are likely to request a healthy premium on the stock price given their long-term view.
In a note to clients, he also said there are a limited number of strategic acquirers, including Berkshire Hathaway and private equity firm Clayton Dubilier & Rice, which owns S & S Activewear, a large distributor of activewear in North America.
Sabahat Khan, an RBC Capital Markets analyst, had a less pessimistic view. He believes the company will see interest from “strategic players in the apparel/ retail space given the company’s significant share in the North American wholesale market.”