Stock says shareholder has ‘conflict of interest’

Stock Spirits Group has urged shareholders to reject resolutions proposed by its main investor, stating they have been “designed to destabilise the business”.

A internal battle between the board of Stock Spirits and the group’s main stakeholder continues

Earlier this month, the revolt of Western Gate Private Investments Limited, the largest shareholder in Central and Eastern European producer Stock Spirits with a 9.7% stake – led to the resignation of CEO Chris Heath.

Backed with support from a second shareholding company, Templeton Emerging Markets Group, Western Gate expressed a number of concerns regarding Stock Spirits, including declining market share in Poland, an “under-performing” share price, and “spiralling” corporate costs.

The groups therefore called for Heath’s removal and a “fresh perspective” at board level.

David Maloney, chairman of Stock Spirits, has sent a letter to shareholders ahead of an AGM next month urging them to reject Western Gate’s proposals since the firm’s head, Luis Amaral, has an “overriding conflict of interest”.

Maloney said that since Amaral is also CEO of Stock Spirits’ largest customer, Eurocash, the proposals have been designed to give the executive “undue influence” over the group’s strategy and would “transfer value” from Stock Spirits to Eurocash.

As such, Stock Spirits believes the proposals would be “disruptive and detrimental” to the majority of investors and are “not in line” with the UK Corporate Governance Code.

Last week, Stock Spirits issued a positive trading update outlining its performance from 1 January to 31 March 2016, insisting that its “root-to-branch” corporate review is “clearly delivering results” – something the group argues has been “ignored” by Western Gate.

‘Hand-picked’ board

In addition to the removal of Heath, Western Gate proposed the appointment of two additional directors – which Stock Spirits claims have been “hand-picked” by Amaral – as well as the blocking of any acquisitions until a new board-level review of the firm’s M&A strategy is approved.

Maloney has, however, argued that a full M&A strategy review is a “wholly unnecessary use of company resources” due to a recently-held recent strategic review and rejected the claim that Stock Spirits is run by “remote control management from the UK”.

“We urge shareholders to vote against the resolutions put forward by Western Gate which are disruptive and detrimental,” said Maloney in his letter. “The board feels strongly that Mr Amaral’s links with Eurocash mean that he is not seeking changes that would be in the best interest of all shareholders, which your board is focused on.

“We firmly believe that the board, as currently constituted, has the right experience to take the company forward until we find a permanent replacement as CEO and would not benefit from the addition of two non-executive directors hand-picked by Mr Amaral.”

He continued: “Whilst there is still much to be done, the actions we are taking are already bearing fruit as last week’s positive trading statement highlighted. But we are not prepared to take part in an aggressive price war in order to recover market share at any cost.

“This would result in a reduced profit for Stock spirits with the economic benefit transferred across to our customers, including Luis Amaral’s Eurocash business.”

Luis Amaral said Maloney’s letter reflects the group’s “tendancy to blame other people for the trouble they find themselves in”.

“They need to spend less time sitting remotely from their business making accusations, and more time turning around their core Polish business to deliver shareholder value for all,” he said.

“For example they say that I have an ‘overriding’ conflict arising from my position at Eurocash, but chose to ignore perhaps that Stock makes up just 3% of Eurocash revenues and a negligible contribution to profit.”