Inside the battle over a T-shirt company
Sometimes in running a big company it’s best to leave well enough alone.
The prospect of changing a decades-old success strategy is at the root of a battle for control of Montreal’s Gildan Activewear in one of the bitterest corporate disputes since the family feud at Rogers Communications a few years ago.
In October, Gildan cofounder and CEO Glenn Chamandy, who had run the company for 40 years, proposed to his board new growth strategies that so alarmed his directors that he was fired by Gildan chair Don Berg a few weeks later.
That abrupt Dec. 10 firing in turn shocked Chamandy’s many allies among Gildan’s biggest institutional investors.
And so, a public war of words between Gildan’s board and those investors has raged for about four months.
The tumult is described by Andrew Brenton, cofounder of longtime Gildan shareholder Turtle Creek Asset Management of Toronto, as “the most surreal situation” he has witnessed as an investor.
The dispute might not be resolved until a May 28 shareholder-meeting showdown where activist investor Browning West of Los Angeles, which owns about $400 million worth of Gildan stock, will try to oust Berg and replace Gildan’s board with its own slate of directors.
Browning West also wants to bring back Chamandy, 62, as CEO.
In the meantime, we have an $8.5billion fight over blank T-shirts, of all things.
That’s the stock market value of Gildan, one of the world’s biggest makers of cheap casual clothing.
Gildan makes private-label apparel for Walmart, Nike and others and has some brands of its own, including American Apparel and Comfort Colors.
But the product line that has made Gildan hugely profitable for years is its prodigious output of blank T-shirts.
Screen-printers worldwide print images of Caitlin Clark and Volodymyr Zelenskyy on Gildan’s “blanks.” That Grateful Dead Tshirt at the back of your closet could have been sewn by one of Gildan’s 43,000 employees.
What Berg appears not to have realized in firing Chamandy is that the ousted CEO enjoys heroic status with Gildan’s major investors.
Chamandy has generated 19 per cent average annual stock returns, including dividends, since taking Gildan public in the late 1990s.
Gildan’s shares have appreciated in value by more than 6,100 per cent since the IPO. Berkshire Hathaway shares have gained about 770 per cent in that period.
But Gildan’s growth flagged last year.
In 2023, its revenues grew by only 1.8 per cent, to $4.3 billion. And its profits were about five per cent below the all-time high of $761 million in 2021.
That’s not a five-alarm fire. But Chamandy’s response to the slower growth might have started one.
At the fateful October board summit in Barbados, Chamandy proposed growth strategies for Berg and his fellow directors to choose from.
Chamandy’s low-risk option was to stick with internal growth to boost market share. That statusquo strategy was a good bet.
Gildan’s recent growth slowdown is due largely to a transition underway from Gildan factories in Honduras to a more efficient new plant in Bangladesh.
When it comes online next year, the new Bangladesh factory should bring a rebound in Gildan’s growth. But Chamandy didn’t stop there. At the Barbados summit, he also proposed a costly acquisition of rival Hanesbrands Inc., according to a Bloomberg investigation, and he had an even costlier, $4 billion-plus proposal to buy two major apparel distributors.
That would have boosted Gildan’s sales, but also immerse the firm in the complex business of direct sales to thousands of apparel buyers worldwide and would plunge Gildan into debt.
But if Chamandy seemed extravagant in his proposals — at least in Berg’s estimation — Berg and his fellow directors didn’t grasp the loyalty to Chamandy of Gildan’s investors. They are now determined to oust Berg and the rest of the board.
As an ex-CEO, Chamandy has wisely indicated he will accede to whatever ideas are held by a new slate of directors that reinstates him.
But Berg has hastily put Gildan on the auction block, further angering investors who think any sale now would be at a bargain price.
And so, at this venerable multinational enterprise, we have one of the more high-profile failures of corporate governance on record.
There is the then-CEO who didn’t understand his board. A board chair out of touch with major shareholders. And directors risking the sale of a company at a discount price, when their fiduciary responsibility is to maximize value for investors.
For all the sound and fury, there’s nothing wrong with Gildan.
Evan Mancer, president of Winnipeg’s Cardinal Capital Management, a major Gildan investor aligned with Browning West, describes the Gildan debacle as “more ego involved than logic.”
Mancer says of Gildan that “there’s a huge upside to the stock if the company can just get out of its own way.”