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Western Gate to vote against Stock Spirits chair

Shareholder Western Gate has called for the removal of Stock Spirits’ chairman and senior independent director due to the firm’s ‘unconvincing’ M&A strategy and ‘significant’ sales losses since 2017.

David maloney
David Maloney, chairman of Stock Spirits

Western Gate, which owns a 10% stake in Prestige vodka owner Stock Spirits, said it intended to vote against the re-election of chairman David Maloney and the senior independent director of Stock Spirits, John Nicolson, at the upcoming annual general meeting (AGM) on 4 February.

Furthermore, Western Gate has requested an “immediate” appointment of independent replacements for the roles using an independent executive search firm.

By October 2022, Maloney and Nicolson would have served the board for nine years and no plans for their succession have been communicated, Western Gate said.

Western Gate noted that UK Corporate Governance Code states that independent directors, including the chairman, should not serve on the board for more than a maximum of nine years.

The directors are the only people who have been on the board since the company’s initial public offering.

Western Gate believes that Maloney and Nicolson ‘no longer demonstrate objective judgement or constructively challenge the board and the executive management’. As such, Western Gate said this has led to ‘inconsistent impairments, a malfunctioning mergers and acquisitions (M&A) strategy and shareholder value destruction’.

Western Gate said its main concerns were Stock Spirits’ ‘significant’ losses from the past three years. The shareholder said the group’s earnings before interest, taxes, depreciation, and amortisation (EBITDA) fell by 51% in 2020, 26% in 2019 and 34% in 2018.

Western Gate pointed to Stock Spirits’ acquisition of a 25% stake in Quintessential Brands’ Dublin Liberties Distillery in Ireland for up to €18.3 million (US$22.1m). The value of the deal, which occurred in 2017, is now said to be only €2.1m (US$2.5m).

In addition, Western Gate said the drinks firm’s performance in Italy has been in ‘severe decline’ since 2014, with adjusted EBITDA dropping by 76% from €8.1m (US$2.5m) to €2m. Stock Spirits purchased Italy’s Distillerie Franciacorta for €23.5m (US$27m) in 2019.

Francisco Santos, director of Western Gate, said: “Year in, year out, shareholders are faced with a ‘dirty’ P&L [profit and loss], with exceptional items that reach 50% of EBITDA.

“This is indicative of the lack of leadership at board level and the impairments reflect a malfunctioning M&A strategy. Stock Spirits needs to learn from the mistakes it has made in the past so it can have a positive future delivering value for all stakeholders.”

Western Gate also pointed to Stock Spirits’ strategy of  improving shareholder value. In December 2019, Western Gate called for the payment of a special dividend of €0.1219 (US$0.14) per ordinary share by Stock Spirits. However, the shareholder noted that it took until February 2021 for Stock Spirits to pay a special dividend of €0.11.

‘Woeful’ track record

Western Gate said Stock Spirits’ track record of delivering shareholder value was ‘woeful’.

In addition, Western Gate recommended Stock Spirits cut its head office costs in 2016, which at the time made up 31.2% of the firm’s 2017 EBITDA. However, it took until 2018 for Stock Spirits to reduce its head office overheads by 20%.

Western Gate added it takes the board at least one year to recognise its suggestions are correct.

A statement from Stock Spirits said: “David Maloney and John Nicolson have the unanimous support of their colleagues on the board, and both have been instrumental in implementing the strategic initiatives that have led to the company delivering such a resilient performance in hugely challenging conditions.

“Stock Spirits is now a stronger business than ever before, and its excellent operational and financial performance last year enabled it to return surplus cash to its shareholders in the form of a special dividend.”

It is not the first time Western Gate has called for the removal of Maloney and Nicolson. In January 2020, the shareholder said it would vote against the duo in the AGM.

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