Western Gate pens letter to Stock Spirits shareholders

21st January, 2020 by Melita Kiely

Investor Western Gate has written a letter to fellow shareholders of Stock Spirits ahead of the company’s annual general meeting (AGM) next month to push for the payment of a special dividend.

Stock Prestige

Stock Spirits owns numerous vodka brands, including Stock Prestige and Božkov

Earlier this month, Western Gate voiced concerns about the governance of Stock Spirits after the vodka producer dismissed its proposal to pay investors a special dividend. Western Gate owns a 10% share in Stock Spirits making it the company’s second-largest shareholder.

In its letter, Western Gate has outlined a proposal to the Stock Spirits board suggesting the payment of a special dividend of €0.1219 per ordinary share. Western Gate said this would increase leverage to 1.25 x EBITDA (earnings before interest, tax, depreciation and amortisation), “well inside the management target of 0.5x-1.5x EBITDA and well below the sector average”.

The investor outlined three key reasons for requesting the special dividend: delayed returns from the acquisitions achieved with accumulation of earnings not expected until 2023; an “erratic” policy towards returning surplus capital to shareholders; and low rates of TSR (total shareholder return) that “compare poorly with representative peers”.

Western Gate argued that the main reason for the resolution was to question the capital allocation policy proposed by the board and make sure that the shareholders adequately benefit from their investment in the company.

In its concluding statement, Western Gate said: “Western Gate is a long-term shareholder in Stock Spirits and we are generally pleased with the improvement of the company’s operational performance.

“However, for several years we have felt the company is being run in the best interests of the board rather than all shareholders.

“We are concerned with the governance following the unprecedented response to Resolution 20. We feel the board should recognise the lack of meaningful growth and the long-term nature of its acquisitions and return capital to shareholders.

“We call for fellow shareholders to vote for Resolution 20 at the upcoming AGM and for the company to see a large vote in favour as a mandate for a review of the capital allocation policy.”

Special dividend would be ‘significant constraint’

Earlier this month, in response to Western Gate’s calls for a special dividend, Stock Spirits responded to the shareholder’s concerns and said a special dividend now would be a “significant constraint” on the company’s mergers and acquisitions (M&A) plans.

A spokesperson for Stock Spirits said at the time: “We have a strategy of both organic and M&A-driven growth which, as our recent full year results show, is driving a strong financial and operational performance and is enabling payment of consistently increasing dividends.

“We continue to assess a range of more meaningful and value-creating M&A opportunities in both existing and new categories and markets but, as we have consistently said, if such opportunities are not realised then we will of course consider making additional shareholder distributions.

“It is our view that payment of a special dividend now would act as a significant constraint on our ability to execute on our M&A and organic growth strategy, which we firmly believe is the best way of improving returns for our shareholders.

“Furthermore, as set out in our articles of association, in common with many UK-listed companies, a resolution to pay a special dividend above the one recommended by the board has to be proposed and passed as a special resolution, which requires more than 75% of the votes, in order to be legally binding. This higher threshold is to protect the interests of all shareholders given the importance of dividend policies and the potential divergence of views among shareholders.

“Clearly, the board has to follow the rules set out in the articles of association and that is why Western Gate’s proposed ordinary resolution would not be legally effective. The board will always take into account the views of all shareholders in determining the best route for delivering shareholder returns.”

The AGM is due to take place on 6 February.

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