Believes the Board’s Poor Handling of CEO Succession and Questionable Judgement Have Put Gildan’s Business and Shareholders at Great Risk
Outlines Critical Deficiencies in the Board’s CEO Search Criteria, Resulting in the Appointment of an Individual Lacking a Track Record of Value Creation and CriticalManufacturing and Vertical Integration Experience
Calls on the Company to Reinstate Glenn Chamandy as CEO, Remove Donald Berg as Chair and Appoint a Shareholder Representative to the Board to Prevent Permanent Damage at Gildan
Will Evaluate Its Right as a Shareholder to Reconstitute the Board by Requisitioning a Special Meeting if Gildan Fails to Correct Its Significant Missteps and Restore Stability to the Company
LOS ANGELES--(BUSINESS WIRE)-- Browning West, LP ("Browning West" or “we”), which beneficially owns approximately 3.9% of the outstanding shares of Gildan Activewear Inc. (NYSE: GIL) (TSX: GIL), today issued the following letter to the Company’s Board of Directors.
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December 14, 2023
Gildan Activewear Inc. 600 Maisonneuve Blvd W #3300 Montreal, QC H3A 3J2 Attn: The Board of Directors
Subject: Restoring Stakeholder Confidence and Preventing Permanent Damage at Gildan
Members of the Board of Directors (the “Board”),
Browning West, LP (together with its affiliates, “Browning West” or “we”) owns approximately 3.9% of Gildan Activewear Inc.’s (“Gildan” or the “Company”) outstanding common shares, making us one of the Company’s largest shareholders. We are a long-term shareholder of Gildan and we have continually increased our investment over the past several years while never selling a share of the Company. Our confidence in Gildan’s business and long-term potential stems from our in-depth and multifaceted analysis, including 46 total meetings with senior leadership, 13 on-site visits, and multiple trips to the Company’s manufacturing plants in Honduras and North Carolina.
Through the course of our research, we found that Gildan’s long-time CEO and Co-Founder, Glenn Chamandy, is a strong leader who has played an instrumental role in the Company’s impressive success. Mr. Chamandy has built Gildan into a dominant business with a strong culture and a wide competitive moat, derived primarily from low-cost manufacturing and vertically integrated operations. Under Mr. Chamandy’s leadership, Gildan’s stock has generated a 99x total return for shareholders and the Company’s earnings per share have grown by nearly 16% annually over 25 years.1 We believe there are few leaders with Mr. Chamandy’s track record of value creation. Despite a challenging macroeconomic environment over the past four years, Mr. Chamandy delivered strong operational performance and large market share gains resulting in 54% growth in earnings per share.2 These share gains position the Company well for further earnings growth in a more normalized economic environment. We believe that under Mr. Chamandy’s leadership, Gildan’s share price was poised to be worth $60 to $80 USD over the next two years, which represents an approximately 80% to 140% increase from the current price, which assumes that Mr. Chamandy delivers $4 of earnings per share and the stock re-rates to its historical valuation range.3
Based on our knowledge of Mr. Chamandy’s strong historical record and the healthy trajectory of the business, we were alarmed that the Board abruptly terminated Mr. Chamandy as CEO – without cause or a viable explanation – on December 11th. The Board’s poor handling of succession and questionable judgement when it comes to its most important responsibility and decision have put Gildan’s business and shareholders at great risk. As described in subsequent sections of this letter, the Board’s CEO search criteria and process were flawed from the outset, resulting in the appointment of a new CEO with limited manufacturing experience and a record of value destruction. We are also concerned that the Board’s poorly overseen leadership transition may trigger attrition among Gildan’s other senior executives, which increases the risk of execution missteps given that Gildan’s business requires intense operational oversight. Finally, while there is never a good time to replace an engaged and value-creating CEO with one who has a history of value destruction, it is even more of a head-scratching decision to do so in a challenging economic environment, which has adversely impacted the industry in recent quarters.
The purpose of this letter is to detail our strong objection to the Board’s recent decisions and to propose tangible actions to restore stakeholder confidence and put Gildan on stronger footing. It is imperative that the Board acts in the best interests of the Company and its stakeholders and moves immediately to implement our recommended actions before permanent damage is done.
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I. Critical Deficiencies in the Board’s CEO Search Criteria Resulted in a Poor CEO Appointment
We believe there were three critical deficiencies in the Board’s CEO search criteria, which resulted in an unacceptable CEO appointment and a significant downgrade from Mr. Chamandy’s leadership. The Board’s search criteria should have prioritized candidates with: (i) best-in-class manufacturing and vertical integration experience, (ii) a clear and verifiable track record of value creation, and (iii) a demonstrated ability to manage an increasingly global business with vast scale.
The Board’s CEO appointee, Vincent Tyra, is lacking with respect to each of these three critical criteria and therefore threatens Gildan’s near- and long-term prospects.
II. Diverging Visions for Gildan’s CEO Succession
We believe it is important to draw a contrast between our understanding of the Board and Mr. Chamandy’s diverging visions for succession and Gildan’s future. We have learned that the primary reason for Mr. Chamandy’s termination was that he wanted to support the Board in carrying out a thoughtful succession plan over the next few years while remaining CEO. Mr. Chamandy’s more patient approach would have enabled the Company to further develop internal candidates for the CEO role, with the obvious advantage that such candidates are steeped in the Company’s unique culture and manufacturing excellence. In our experience, any Board should jump at the opportunity to leverage a CEO of Mr. Chamandy’s caliber in a thorough search for a successor, considering both internal and external candidates with clearly defined search criteria. We agree that succession should occur at Gildan, but it must be implemented thoughtfully and with relevant, well-defined criteria.
In contrast to Mr. Chamandy’s thoughtful approach, it appears that the Board’s vision for succession was to rush forward with a poor CEO appointment (i) based on an arbitrary timeline, (ii) with flawed CEO search criteria, (iii) without the involvement of Mr. Chamandy, and (iv) in a challenging economic environment. We question why the Board neglected to utilize Mr. Chamandy’s wisdom, especially given his outstanding multi-decade track record. Had the Board consulted him, it would likely have learned that manufacturing excellence is a critical skill set for any future CEO. The Board’s lack of thoughtful succession planning culminated in the abrupt termination of Mr. Chamandy, a disjointed transition plan, and the appointment of a new CEO who lacks critical best-in-class manufacturing experience and has a clear track record of value destruction. In just three days since the Board’s rash announcement, the share price has underperformed the most relevant index by 14%, causing significant harm to shareholders. This is in stark contrast to the 28% outperformance the Company had achieved year to date prior to the Board’s shocking announcement.14
III. Browning West’s Clear and Immediate Solution
In light of the critical issues set forth above, Browning West is demanding the Board immediately take the following three actions:
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Based on normal course conversations we have had with many of the Company’s large shareholders in recent days, we believe that a substantial percentage of the Company’s owners share many of our deep concerns.
We remain long-term owners of Gildan and are confident in the value-creation potential of the business. However, we believe the Board must act urgently to correct its substantial missteps and restore stability to the Company. If the Board does not act with urgency, we will consider exercising our rights as a shareholder, including with respect to requisitioning a special meeting to reconstitute the Board.
We look forward to speaking soon to discuss the implementation of our proposed actions.
Sincerely,
Usman S. NabiPeter M. Lee
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No Solicitation
This press release is for informational purposes only and is not a solicitation of proxies. If Browning West determines to solicit proxies in respect of any meeting of shareholders of the Company any such solicitation will be undertaken by way of an information circular or as otherwise permitted by applicable Canadian corporate and securities laws.
About Browning West, LP
Browning West is an independent investment partnership based in Los Angeles, California. The partnership employs a concentrated, long-term and fundamental approach to investing and focuses primarily on investments in North America and Western Europe.
Browning West seeks to identify and invest in a limited number of high-quality businesses and to hold these investments for multiple years. Backed by a select group of leading foundations, family offices, and university endowments, Browning West's unique capital base allows it to focus on long-term value creation at its portfolio companies.
___________________________ 1 Bloomberg market data as of December 13, 2023 and represents total return since June 17, 1998 IPO through December 8, 2023. Adjusted EPS CAGR measured from FY1998 through FY2023 from Gildan Annual Report and Gildan guidance. 2 Adjusted EPS CAGR measured from FY2019 to FY2023 based on Gildan Annual Report and FY2023 Gildan guidance. 3 Target price derived from applying 15 – 20x P/E multiple to Browing West two year EPS estimate of $4. 4 Fruit of the Loom 1999 and 2000 10-Ks, Bloomberg market data as of December 13, 2023 and represents share price performance from September 8, 1997 through May 1, 2000. Activewear segment revenue and operating earnings measured from 1997 through 2000, the period which Tyra served as Executive Vice President and then President of Activewear. Tyra was appointed President of Retail in December 1999 in addition to his role as President of Activewear. 5 Fruit of the Loom 1999 and 2000 10-Ks. Represents average Activewear segment operating margin from 1997 through 2000. Gildan operating margin target from March 2022 Investor Day presentation. 6 Gildan Annual Reports, Bloomberg market data as of December 13, 2023. Net earnings growth measured from 1997 through 1999 and stock performance measured from June 17, 1998 IPO through May 1, 2000. 7 Broder Bros., Co. public SEC filings including Amended S-4 filed April 16, 2004, 2004 10-K and 2005 10-K. Net income measured from 1999 (year prior to Tyra’s appointment as CEO) through 2005. 8 Broder Bros., Co. public SEC filings including Amended S-4 filed April 16, 2004, 2004 10-K and 2005 10-K. Average operating margin measured from 2000 through 2005. 9 Broder Bros., Co. 2008 10-K. In May 2009, the Company completed an exchange offer which resulted in holders of Senior Notes due October 15, 2010 being exchanged for newly issued Senior Payment-in-Kind Notes due October 15, 2013 and 96% of the pro forma equity. Estimate of equity value loss assumes Broder Brothers was valued at a 10x FY2008 Adjusted EBITDA multiple pre- and post-exchange offer. 10 Gildan Annual Reports, Bloomberg market data as of December 13, 2023. Net earnings growth measured from 2000 through 2005 and stock performance measured from May 1, 2000 through December 30, 2005. 11 Bloomberg market data as of December 13, 2023 and represents total return from June 15, 2014 through December 31, 2019. Revenue measured from 2014 through 2018 from Industrial Services of America 2014 and 2018 10-Ks. 12 Mr. Tyra has served as an operating partner at Southfield Capital for both their private equity and mezzanine funds. Per their website, their private equity strategy targets companies with between $4 and $15 million of EBITDA and a minimum $3 million of EBITDA for their mezzanine strategy. 13 Article written by Chris Otts published December 12, 2023 on WDRB.com titled “Former Louisville AD Vince Tyra to lead global clothing maker.” 14 Bloomberg market data as of the writing of this letter at 10:30am EST on December 14, 2023. Underperformance represents total return for Gildan stock relative to the Russell 2000 Index from December 8, 2023 through 10:30am ESTDecember 14, 2023. Gildan outperformance relative to the Russell 2000 year to date calculated as the difference between the total return for Gildan and the Russell 2000 between December 31, 2022 and December 8, 2023.
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Browning West info@browningwest.com 310-984-7600 Longacre Square PartnersCharlotte Kiaie / Scott Deveau, 646-386-0091 browningwest@longacresquare.com
Source: Browning West, LP